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Forex Vocabulary

Lesson 1: Forex Definition and Explanations

What is FOREX? 

FOREX stands for Foreign Exchange or, in other words, currency trading market. Currently FOREX is the largest and fastest growing financial market in the whole world with a daily volume of almost 3 trillion dollars. Quite a number, won't you say? That is 30 times higher then the turnover of all USA equity markets combined! Other names for FOREX include "Retail forex", “FX” , "Spot FX" and even just "Spot".

Who is involved in FOREX?

You might ask yourself who is involved in currency trading. The participants of FOREX are central and commercial banks, multinational corporations, institutional investors, governments, hedge fund and private individuals like you.  

What is traded in FOREX?

Foreign (currency) exchange speaks for itself. Like in all markets, you simultaneously trade one thing for another. Same goes for Forex where the "things" are currencies of different countries – you buy one currency (in other words money) and sell another at the same time.  

Confused with currency exchange!

How can you trade something that you can't see or touch? Since trading currencies isn't something physical FOREX might seem confusing in the beginning. One way to brush the confusion away is to think of buying a currency in the same way as you think of buying shares in a particular country.  EXAMPLE: Let's say, you decided to buy Japanese Yen. What exactly did you do? You bought a share in the Japanese economy. The value of the currency is an upfront indication of what the market thinks of Japanese economy today and in the future. 

What does exchange rate show?

The exchange rate of a certain currency against currencies from other countries shows the condition of that country's economy compared to the other countries' economies.  

What is the most traded currency?

Currently US dollar (USD) is the most traded currency. Other major currencies after US dollar are:

Currency

Country

FOREX Symbol

Dollar

USA

USD

Euro

Euro members

EUR

Yen

Japan

JPY

Pound

Great Britain

GBP

Franc

Switzerland

CHF

Dollar

Canada

CAD

Dollar

Australia

AUD

Dollar

New Zealand

NZD

How is the currency trading performed? 

A broker or a dealer is the link in FOREX and currencies are traded in pairs: For example the Euro dollar and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY). For more currency abbreviations click here. 

Who or what is Forex broker?

The simple definition of a broker is a person or a company that deals with trader's (yours) orders (to buy and sell, that is). Obviously, brokers are not working for free and are compensated for their services through something called bid-ask spread, meaning your broker earns his money by taking the difference in price between the ask price and bid price for the currency being traded.

How to choose FOREX broker?

There are tones of online brokers and choosing one might sound like a headache. ForexVote.com has researched and created a reliable list of top brokers available online, giving you the full review of their services and fees. See Forex Brokers Database Here 

Is there a time table for currencies trading?

FOREX is currency trading 7-eleven! The market is opened every day for 24 hours, enabling traders to act on news and events as they happen. How is it possible that the foreign exchange market is available 24 hours? The reason behind it is that currencies are in high demand. It is an international market, meaning there is always someone somewhere who is making demands for a particular currency. There are 3 major regions of FOREX market:

  • Australasia
  • Europe
  • North America

Forex trading begins in Australasia region, followed by Europe and ends in North America. It follows the sun all around the globe and when one region's markets close for a day another opens right then and there. Sometimes these markets even overlap with one another giving a several-hour window for the most dynamic foreign exchange. The main idea behind this is that it is impossible that a participant in forex market won't be able to make a currency trade during some point of the trading week.

Objectives of FOREX 

You are a FOREX trader and your objective is to make money by trading one currency for another and then wait for the price to change so that the currency you bought will increase in value compared to the one you sold (and not the other way around!)