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How Does Forex Trading Work

So What is Forex?

The Foreign Exchange market, also known as "Forex", "FX", "Spot FX" or just "Spot" is the oldest, largest and most liquid financial market in the world, tracing its history back centuries to Babylonian times. While the global financial markets were collapsing in 2008, the FX market experienced tremendous growth, reaching more than 1.78 million transactions per day – an average daily trade volume approaching $4trillion. That’s three times the stocks and futures markets combined. With so many investors and so much money changing hands each day, it is the perfect market for traders who use technical analysis tools. Forex trading offers investors an excellent way to diversify their portfolios, lower volatility and reduce market risk, and being a Global market it is possible to trade Forex 24 hours a day.

How Does Forex Work?

Forex trading is the simultaneous buying of one currency and selling of another, as traders speculate the value of one currency will strengthen or weaken against the other. As such, trading is always conducted in currency pairs. The first currency in the pair is known as the ‘base’ or ‘transaction’ currency and the second is known as the ‘quote’ or ‘counter’ currency, for example the pound and the US dollar (GBP/USD) or the US dollar and the Japanese Yen (USD/JPY). The price that is quoted corresponds to the number or quote currency that is required to buy a unit of the base currency.

Movement of currency is expressed as percentage in point, or ‘pip’ also known as ‘point’ which is the smallest unit of price for any currency. The size of the smallest incremental change depends on which is being traded. For the actively traded currencies for example GBP/USD a single pip equals the smallest change in the fourth decimal place - that is, 0.0001. However for lesser traded currencies the decimal place can be higher a noteworthy exception is the USD/JPY pair where a pip equals $0.01.

Unlike equity trading, Forex doesn’t take place via a centralised exchange and is instead conducted over-the-counter (OTC). Buyers and sellers trade directly with one another or through brokers, dealers and market makers, rates can therefore vary.

And what about Technical Analysis?

Technical analysis is the study of a securities price movement through the use of charts. Investors look for patterns and indicators on stock charts that will determine the securities future performance and exploit this information to make money whilst avoiding losses. Technical analysis has become increasingly popular over the past several years, as more and more people believe that the historical performance of foreign exchange, stocks or futures is a strong indication of future performance; therefore becoming a self fulfilling prophecy. More information about setting up technical analsysis alerts can be [Price & Technical Charts & Alerts| found here]

If you require any further guidance with using timetotrade’s new Forex Alerts tools, please contact us.

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The information and data provided is for educational and informational purposes only. Interpretation and use of the information and data provided is at the user's own risk. All information and data on this website is obtained from sources believed to be accurate and reliable. However, errors or omissions are possible due to human and/or mechanical error. All information and data is provided "as is" without warranty of any kind. We make no representations as to the accuracy, completeness, or timeliness of the information and data on this site and we reserve the right, in its sole discretion and without any obligation, to change, make improvements to, or correct any errors or omissions in any portion of the services at any times. Past performance is not a guarantee of future results. Trading carries a high level of risk to your capital and can result in losses that exceed your deposits. It may not be suitable for everyone so please ensure you fully understand the risks involved.

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