In many ways, the Forex market is like many other markets: The goal is to buy low, sell high (or for short positions, sell high, cover lower, but we’ll get to that later). Let’s start learning more about the basics of the Forex market.
What is Forex
Speculators similarly come to the Forex market with the goal of producing profit by a market’s movements. And just like stocks or futures, prices move throughout the day and that can allow for profit (or loss), and traders can evaluate numerous opportunities as prices continue to move 24 hours a day, five days a week.
A key point is the fact that currencies are the base of the financial system. So, there’s really no other way to value a currency other than by using other currencies. This may sound paradoxical. It’s not. It’s more relative than anything. If someone asks you what the value of the Euro is – how do you respond? You can’t quote the Euro in terms of the Euro, that’s an actual paradox. But – you can use the US Dollar, or the Japanese Yen, or the British Pound. And this happens all day, five days a week in currency pairs like EUR/USD, EUR/JPY and EUR/GBP.
How to Read a Currency Pair
Another important nuance of the FX market is in the pricing. For most people, they’ve probably only seen prices quoted in rational amounts. Like $15.75 or $199.99; you know, Dollars and Cents. Well, in FX the pricing gets far more granular, and prices can be quoted to five places beyond the decimal. EUR/USD, for instance, can be quoted as 1.2135; which is like saying One Dollar, 21 Cents and 35 ‘pips.’ But – what is a pip? This is an important one because it’s the base unit of measurement in the FX market. Click the article below to learn more.
What is a Pip?
If you’re reading this, you probably wanted to learn about more than just pip values and forex quotes. You’re likely looking to work with movements in markets, and this is where analysis can start to come into play, and that’s what we do at DailyFX – research and analysis to help our readers and customers of IG to make more informed decisions. But – there’s one massive force at the core of most FX movements, and you can learn about that by clicking on the link below:
Interest Rates and the Forex Market
At this point, we’ve thrown a lot of new concepts and ideas your way. Digest this information the best you can because this is all foundational material that’s going to be used throughout your FX trading career.
What could be helpful is learning what type of trader you might be. Of course, this can take some time and experience before you find your best fit. But one tool that may help is what we call our DNA FX Quiz. It’s a personality test, basically, after which we recommend a trader ‘type’ based on the answers you’ve provided. This is free to take and can be accessed from the link below:
DNA FX Quiz
If you want to take the next step to put these lessons into action – locate the Central Bank rates for the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan. We’ll get into more depth in the next lesson as we get deeper involved with drivers behind FX prices.
In trading, like most other fields, experience is very important. The downside of the requirement: losses or mistakes can be very costly, and this can make the barriers to entry even higher for new traders. There is an option to gain experience without financial risk, and that’s a demo account. The downside is any gains made would not be real as it is fictional capital. But it does allow a new trader to familiarize with the platform and the market without having to put their hard-earned money on the line.
