PlayingForex.Com | Learn to Trade for Profits EVERYTIME

Forex as you may have understood from the title is derived from and stands for Foreign Exchange. What is foreign exchange you ask? Foreign exchange refers to the trade of foreign currency. Yes, like stocks and other commodities, foreign currency is also traded. Not only that, the forex market is the largest in the world, and has a daily turnover of close to a trillion and a half US dollars!

Unlike stock exchanges, forex is not traded on any exchange. It is traded through financial institutions like banks, brokers, and private dealers and individuals. Trade execution takes place mostly through telephones, and increasingly, the internet. Also, the required investment/deposit was a huge sum earlier. But now, due to the net revolution and the smaller capital required, forex trading has percolated to the individual level.

When we speak of the forex market, one needs to be aware that most of the trades don’t really happen.

Confused? Let me clarify. When an institution or an individual purchase currency, they often don’t actually take delivery; they are merely speculating on how that particular currency performs. This means they buy based on information they receive from different sources regarding the tentative change in currency value.

And if they’re lucky, and the currency performs according as their sources had predicted, they sell it back, at a higher rate, thereby making a profit. How much they make obviously depends on the initial purchase and the subsequent increment in value. Simple “short-term” trading, which makes up about 70-90% of the trade. The rest of course is actual sale and purchase.

The five major currencies traded are the US Dollar (USD), the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc (CHF). The symbols in brackets indicate the symbols used to represent these currencies during trade. The most traded currency is the US Dollar, and most currencies are traded against the dollar only. The rate at which a currency is traded is called the exchange rate.

How this rate is determined, and how it fluctuates is a concept that involves many factors. For now, this should be enough. We’ll learn about market mechanics ahead.

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