Forex is a term you’ve probably heard before, and whether you’re aware of it or not, you’ve probably been involved with things like traveling abroad and buying foreign currency.
In this article, we dive into the details of forex trading, from basic terms traders should become familiar with to the types of forex pairs and more.
So if you want to learn more about the largest financial market in the world, read on.
Forex in terms of basic terms:
Basically, the term foreign exchange or forex refers to buying one currency in exchange for another, but its value goes much deeper. . It is also the most liquid market with an average daily trading volume of $6.6 trillion, making it one of the most traded markets in the world.
Where can I trade CFDs in Forex?
There are many forex trading platforms, for example on Plus500 you can trade forex CFDs on more than 70* different currency pairs and more than 2500 financial instruments. You can read more on the Plus500 website here and watch the Plus500 Trader’s Guide videos to learn more about CFD trading with Plus500.
When can I trade forex?
Plus500 offers 24-hour CFD trading in forex pairs and opens Monday morning at 08:00 Sydney time and runs until 16:00 New York time on Friday afternoon.
What types of forex markets are there?
In the world of forex trading, there are 6 main markets:
Forex spot market – the physical exchange of a currency pair that takes place on spot day (generally this refers to the trading day plus two days – “T + 2”). The spot market involves the instantaneous exchange of currencies between buyers and brokers. Banks, central and commercial banks, and dealers are the main participants in the spot foreign exchange market.
Forward Currency Exchange – Over the counter (OTC) contract to buy or sell a specified amount of a currency at a specified price on a future date. This type of market can be very effective for traders looking to hedge by selling their assets at a fixed price to avoid potential future losses.
Forward Currency Market – The main difference between the spot market and the futures market is that futures contracts are legally binding. A forex futures contract is an exchange-traded contract to buy or sell a specified amount of a specified currency at a predetermined price on a specified date in the future. In addition, this type of market is known for its high liquidity.
Forex market – It is basically a transaction (buying and selling simultaneously) of currency pairs where the two parties give each other an equal amount of money in different currencies.
Forex Options Market options are contracts in which the seller gives the buyer the right, but not the obligation, to buy or sell a forex pair at a predetermined price. With a call option or a put option, you can buy or sell the pair accordingly.
The CFD market or Contract for Difference is an agreement between a buyer and a seller or between a client and a provider like Plus500. The contract states that the buyer is obligated to pay the seller the difference in price between the current value of the underlying asset and its value at the inception of the contract.
Types of forex currency pairs
As mentioned, forex is trading currency pairs and can be defined as buying one currency against another at the same time. Forex mainly occurs on the OTC market; It is also traded on futures exchanges.
Currency pairs generally fall into 3 main categories: major, minor and exotic pairs.
Major Currencies – Major currency pairs are the most traded currencies around the world, hence the name “major currency”. Additionally, this type of currency pair has the highest liquidity and always involves trading the US Dollar (USD) against other major currencies, namely the Euro (EUR), British Pound (GBP), Swiss Franc (CHF) and Japanese Yen .
The most commonly traded major currencies are EUR/USD, AUD/USD and USD/CAD.
Minor Currencies Minor currencies are currency pairs that exclude the dollar and usually have less liquidity than the major currencies.
Exotic Coins Exotic coins are usually considered the least traded due to their heavy hexchangeable coins exist. An example of an exotic pair is GBP/SEK.
Exchange rate movements can reflect a number of different fundamentals, including economic growth, international trade flows and changes in interest rates.
What moves the foreign exchange market?
We will mention the factors affecting the forex market:
Central banks – The global money supply is determined by central banks. If the central bank increases the money supply, the currency is likely to fall. In general, interest rate levels are also controlled by central banks, which is crucial to a currency’s strength or weakness.
Economic Data – Reports on the state of the economy serve as an important indicator of a currency’s strength. Key economic data includes unemployment rates, inflation rates and trade balances. Traders can use Plus500’s free economic calendar to keep track of important economic events.
