What is Forex in Simple Language?
The Forex (foreign exchange) market, an international system, is where individuals, who are the traders of different currencies, and financial institutions exchange currencies of various countries. Shall we first describe the mechanism, in simple language?
First, it’s important to understand that Forex is not a physical place like a stock exchange, for example. Rather, it is a network that connects banks, forex brokers (you can find out more about Forex brokers in the review https://revieweek.com/forex-brokers/), companies, and individual investors around the world. They trade over the internet, over the phone and with the help of computer programs.
Here is always the question of which broker is reliable. Pocket Option is what such traders write in the reviews. Before you start working with a broker, read reviews about it. To do this, look at reviews specifically about pocket option. Let’s move on. Suppose you have money in one currency; let us suppose that this is the dollar, and you want to exchange it for another currency – the euro.
This can be done on Forex. These two currencies’ ratio fluctuates every minute. It changes for various reasons, including news, politics, and even weather. People come to Forex for different purposes. For example, some companies must pay for goods from other countries. To do this, they also have to exchange currency.
Others do this at their own discretion – they can make money on exchange rate changes. If, for example, a currency becomes cheaper, they buy it and then sell it when it grows. And they do it all the time. One of the main features of Forex is that it works around the clock. The market is open five days a week, and during these days, it operates round the clock. When one financial center of a day closes, the other center opens. For example, when New York stops working, Tokyo starts working.
That is why you can trade day and night. It is important to remember that this market is very risky. Since the volume of trades is very large and the ratio can shift quickly, you can make a lot of money in one day; you can also lose all your money in one day. That is why it is important to learn well before getting started.
Forex Principles
Forex trading is based on several key principles, the understanding of which is necessary for successful work in this market:
- Currency pair concept. FX is a market that people use to exchange currency for another. Bidirectional trading is done in the pairs of currencies, for example, USD/EUR where EUR is the base currency and USD is a quote currency. The exchange rate of a currency pair is quoting how much of the quote currency are required to buy one unit of the base currency.
- Buying and selling. Currency dealers generate profit from changes in the value of the currencies where they expect the one to rise and sell of the one that is forecast to weaken. Thus, by increasing and decreasing rates, making money will be accomplished by you. Here, the traders use these trading terminals to execute transactions. One of the advantages is that their easy and convenient terminal on the pocketoption.com site.
- Using leverage. Forex has the unique feature of allowing the use of leverage. This allows traders to trade larger volumes of currencies than the traders individually necessarily have at their disposal. Although this may bode well for the profits, the dangers are also high as the losses can be more than the deposit.
- Market analysis. Traders use two main types of analysis: technical as well as accounting-based. The approach of technical analysis is to study the chart of prices and the trading patterns, while the critical element in the fundamental analysis is the macroeconomic indicators and the political situation.
- Management of risks. To manage different kinds of risk, smart traders make use of stop losses to curb down possible losses and moreover, use of reasonable money management which does not overinvest a whole trading account into a single trade.
- Psychology of trading. The ability to stick to a disciplined, emotionally stable approach and the ability to evaluate and make decision using analysis and not emotions are elements that contribute to successful trading.
- Continuous learning. The FX market is dynamic and trading has a chance to stay up-to-date hourly by monitoring economic news, research studies, and economic data releases.
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