WHAT IS FOREX 
TRADING?

Foreign exchange, or forex, may be defined as a network of buyers and sellers who exchange currencies at a set rate. If you have ever been overseas, it's probable that you have engaged in some type of forex transaction. It is the process through which people, businesses, and central banks change one currency into another.

In contrast to dealing in shares or commodities, forex trading occurs directly between two parties in an over-the-counter (OTC) market. A worldwide network of banks that are dispersed across four significant forex trading hubs in various time zones—London, New York, Sydney, and Tokyo—run the forex market. You can trade FX whenever you want because there is no central hub.

The first currency specified in a forex pair is referred to as the base currency, and the second currency is referred to as the quote currency. The price of a forex pair is the amount one unit of the base currency is worth in the quotation currency. As selling one currency to acquire another is a constant component of forex trading, it is quoted in pairs. Each of the two currencies in the pair is identified by a three-letter code, which typically consists of two letters denoting the area and one letter denoting the currency. For instance, the currency pair GBP/USD entails purchasing the British pound and selling the American dollar.

The base currency in the example below is GBP, while the quotation currency is USD. A pound is worth 1.35361 dollars if the GBP/USD exchange rate is 1.35361.

The price of the pair will climb if the value of the pound relative to the dollar rises, making one pound worth more dollars. The price of the pair will fall if it does. So, you can purchase the pair if you believe that the base currency in a pair will likely strengthen versus the quotation currency (going long). Selling the pair is an option if you anticipate a decline (going short).

Forex trading can be done in many different ways, but it always involves simultaneously purchasing one currency and selling another. Although many forex transactions were previously carried out through a broker, the growth of internet trading has made it possible to profit from changes in the exchange rate utilizing derivatives like CFD trading.

Because CFDs are leveraged products, you can start a position for a small portion of the total trading value. In contrast to non-leveraged goods, you don't really own the asset; instead, you stake a bet on whether you believe the market will increase in value or decrease. Leveraged products can increase your earnings, but if the market goes against you, they can also increase your losses. For a currency pair, the spread is the distinction between the quoted buy and sell prices. When you open a forex position, you'll be given two prices, just as in many other financial markets.

Lots are groups of currency that are used to standardize currency exchange deals. A normal lot is 100,000 units of the base currency since forex moves in very tiny increments. So, practically all forex trading is leveraged since individual traders may not always have 100,000 pounds (or the currency they are dealing) to invest on every trade.