Forex

What is Forex Trading?

With more than $5 trillion traded on average every day, Forex is the most traded financial instrument in the markets. They are mainly traded by banks, institutions, and individuals.
What makes the currency pairs of the forex market move?
There are many things that can influence currencies to move. It can be due to international trade, monetary policy, political and economic stability, news events, or a multitude of other factors. However, it is vital to note that human emotion and psychology plays a huge role in moving the markets, not only Forex.

Forex Basics

Forex is short for foreign exchange, simply put, the strength of one currency against another currency. For instance, the Great British Pound and Euro would be seen as GBP/EUR. The currency observed on the left of the pair is the base currency. In Forex trading, one speculates if the base currency would rise or fall.

Looking at the same example of GBP/EUR, with the base currency on the left (GBP) and counter currency on the right (EUR); if you predict that GBP was about to strengthen compared to EUR, you would go long. Vice versa, you would go short if you think that GBP will weaken against EUR.

If the current exchange rate of the pair is 1.1207, it means that one GBP is worth 1 Euro at 12 cents.

Forex Basics

Forex is short for foreign exchange, simply put, the strength of one currency against another currency. For instance, the Great British Pound and Euro would be seen as GBP/EUR. The currency observed on the left of the pair is the base currency. In Forex trading, one speculates if the base currency would rise or fall.

Looking at the same example of GBP/EUR, with the base currency on the left (GBP) and counter currency on the right (EUR); if you predict that GBP was about to strengthen compared to EUR, you would go long. Vice versa, you would go short if you think that GBP will weaken against EUR.

If the current exchange rate of the pair is 1.1207, it means that one GBP is worth 1 Euro at 12 cents.

forex

Pips

Pips

pound&euro

When forex pairs move, they do so in terms of pips. A pip stands for “percentage in point” and is known as the smallest price movement based on the forex market convention that an exchange rate can make. A pip is thus equivalent to 1/100 of 1% or one basis point. A change in the fourth decimal point of the currency pair by one would be known as a one pip change.
If the exchange rate is 1.1207 and the market pushes higher to 1.1209, then there has been a 2-pip increase. If we say that the exchange rate fell from 1.1209 to 1.1200, then there has been a 9-pip decrease.

So, the forex market is displaying the strength of any particular currency in relation to the counter currency, and it’s as simple as that.

When forex pairs move, they do so in terms of pips. A pip stands for “percentage in point” and is known as the smallest price movement based on the forex market convention that an exchange rate can make. A pip is thus equivalent to 1/100 of 1% or one basis point. A change in the fourth decimal point of the currency pair by one would be known as a one pip change.
If the exchange rate is 1.1207 and the market pushes higher to 1.1209, then there has been a 2-pip increase. If we say that the exchange rate fell from 1.1209 to 1.1200, then there has been a 9-pip decrease.

So, the forex market is displaying the strength of any particular currency in relation to the counter currency, and it’s as simple as that.