How The Forex Market Works

Foreign exchange trading, also known as Forex or FX, is a trading investment vehicle that is used by plenty of big banks, but how exactly do they make money trading currencies? Read on to find out.

Foreign exchange trading, also known as Forex or FX, is a trading investment vehicle that some of the world’s largest companies and banks from around the world invest in. The basics of the forex market are similar to that of the stock market, but on a much larger scale that’s open around the clock and involves international currencies.


How The Forex Market Works

During the day, currencies fluctuate hundreds of times, similar to the stock market. While the value of the dollar may be higher one day, the very next could be lower. Trading on the forex market usually requires you to pay close attention to your trader, especially if you’re investing huge amounts of money, since the markets are open twenty four hours a day.

The three main trading areas for Forex happen in Tokyo, New York and London. The results of any forex trading in one country could affect what happens in other countries as they take turns opening and closing with the time zones. Exchange rates are always fluctuating, and if you’re learning about the forex markets, you’ll want to know what the rates are on any given day before making your trades.

Although there are hundreds of currencies exchanged, the most heavily traded ones include (in no particular order) the Swiss franc, the Euro zone euro, the Australian dollar, the British pound sterling, the Japanese yen, and the United States dollar. When you trade between currencies, you always have to trade pairs. For example, USD and JPY is the exchange of U.S. dollars for Japanese Yen. You can also trade from the currency you’ve invested in to yet another currency to build up additional profits and interest on a daily basis.

If a person knows what is going to happen to the stock market before the general public knows, it’s known as insider trading – which is very illegal by the way. The Forex market differs because there is very little (if any) inside information in the forex trading markets. Within the Forex market, more emphasis is placed on the currency, the value of the economy of a country at that specific time.

Every currency that can be traded on the Forex markets has a three letter code associated with it, similar to a stock has a symbol.

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