The essence of any market is buying an item at a lower price and selling it at a higher price. In this regard, the Forex market is no exception, the only difference is that items on the foreign currency market are represented by foreign currencies that have their own prices.
Forex is the largest and the most liquid financial market in the world. The daily trading turnover on Forex amounts to over 2 trillion US dollars.
When working on the international currency market, a trader sells one currency in exchange for another. A rate shows the value of one currency in terms of another currency. Thus, the currencies on Forex are traded in pairs with a view to gain profit on fluctuations of the exchange rates. For instance, that particular currency is bought that is expected to consolidate, meanwhile the other one is sold.
Therefore, a trader has no need to wait for a bullish market in order to make profit, because anytime one currency may consolidate against another one. Thanks to that, every trader or investor on Forex has an opportunity to earn profit.
The Forex participants are largest banks, transcontinental companies, and private investors. Each of them pursues the only goal – to buy cheap and to sell dear. The difference consists in the deal volume.
Each currency has its own symbol, a sort of a code, comprising three capital letters. Among the most widespread currencies are the U.S. dollar (USD), euro (EUR), Swiss franc (CHF), Japanese yen (JPY), and British pound (GBP). The first two letters denote the country, and the last one stands for the corresponding currency; EUR and RUB are the only exceptions.
The symbol is followed by a number, which usually contains five figures. It shows the ratio between the currencies' prices, i.e. how many units of the quote currency a trader needs to buy one unit of the base currency. Bid price is the one, at which a trader is ready to buy a financial instrument. Ask price is the one at which a trader is ready to sell a financial instrument. Spread is the gap between the ask and the bid prices.
To prevent losses and take the target profit, a trader may use special trading instruments. There are such instruments as stop and limit orders. While opening the position, a trader sets some level at which the deal will be automatically closed as soon as the price hits it.
There is one thing that confuses almost every beginning trader – it is essential to understand at what quote, ask or bid, the order should be closed.
Trading on Forex has a lot advantages. The key one is the round-the-clock operation. No other financial markets work 24 hours 5 days a week. The constant market functioning provides the regular update on the world's economic, political and social events. Every investor may avail himself of market fluctuations and gain a large profit.
