What is Forex

Forex definition

Forex or FX, relates to buying and selling currencies with the purpose of making profit off the changes in their value. Forex is the biggest market in the world by far, larger than the stock market or any other, there is high liquidity in the forex trading market. Therefore, the forex market attracts many UK traders, beginners trader and experienced alike.

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The Forex Market

With approximately $4 trillion USD traded in the market every day, the forex market has the highest liquidity in the world. Basically, this means that one can buy almost any currency he wishes in high volumes while the market is open. The forex market is open 24 hours, 5 days a week – Monday to Friday. Trading begins with the opening of the market in Australia, Asia, Europe to follow and then the USA until the markets close.

The forex market start time during the summer is on Sunday at 9:00pm GMT, and ends at 9:00pm GMT on Friday. In the winter it’s 10:00pm-10:00pm accordingly. That results with currencies being traded at all times, day or night. Unlike some other instruments, where a downfall of the market would leave traders with untradeable assets, the forex market can always find a buyer or a seller.

What are the main currencies in forex?

There are hundreds of currencies in the world, and each has a three letter symbol. American Dollars are USD, Euros are EUR, Swiss Francs are CHF, British Pounds are GBP and onwards to all the currencies.

Currencies are divided into two main sorts – Major currencies and minor ones. The major currencies are derived from the most powerful economies around the globe – the US, Japan, the UK, the Euro Zone, Canada, Australia, Switzerland and New Zealand. Together with the other currencies they create forex pairs.

Forex Pairs Groups

In order to make it easier for you to understand which forex pairs are similar to one another, they are grouped together. In the forex world, there are three major categories of currency pairs which include:

  1. Major currency pairs.
  2. Minor currency pairs.
  3. Exotic currency pairs.

The biggest difference between these categories is the liquidity involved in each market.

  • Major Currencies

    The most liquid forex pairs, of course, are the major pairs, as they are the most heavily traded pairs in the world. They include the GBP/USD, USD/CAD, USD/JPY, AUD/USD, USD/CHF, EUR/USD, & NZD/USD pairs. You might notice that in each currency pair listed, the US dollar (USD) is included as one of the forex pairs.

    This is because the US dollar is considered to be the world’s reserve currency.

  • Minor Currencies

    The minor currency pairs include markets that, while not quite as liquid as the major forex pairs, are still very liquid. For example, the most traded minor currency pairs include the JPY, GBP, & EUR currencies. The US dollar is not included in the minor currencies.

    Examples of minor currency pairs include the EUR/JPY, EUR/GBP, CHF/JPY, GBP/CAD and many more. You will quite often see less liquidity in these markets than the major pairs, but for the retail trader, trading these forex pairs offer many trading opportunities.

  • Exotic Currencies

    Finally, the exotic currency pairs include currencies such as the ZAR (South African rand) & the MXN (Mexican peso). These pairs tend to be much less liquid, meaning there isn’t much trade volume, and are more often than not, traded as long-term investments. With the lack of volume, these pairs quite often have very large spreads.

    You might also find that exotic currency pairs do not see much volume during certain times of the day. For example, the USD/MXN pair sees most of its trading during North America hours, which of course makes sense as corporations doing business between the United States and Mexico, will be driving most of the transactions during this time.

Forex Basic Terms

The most popular pair traded is the Euro vs. the American Dollar, or EURUSD. The currency on the left is called the base currency, and is the one we wish to buy or sell; the one on the right is the secondary currency, and is the one we use to make the transaction. Each pair has two prices – the price for selling the base currency (ask) and a price for buying it (bid). The difference between them is called a spread, and represents the amount brokers charge to open the position. The more a currency is traded, i.e. high liquidity, its spreads will be narrower. The rarer the pair is, the wider the spreads will be, since lower liquidity usually entails increased volatility. The increased risk – consequently – entails a wider spread.

Usually a quote will be presented with four numbers after the dot, for instance 1.2356. In the case of EURUSD it means for every Euro the trader wishes to buy he will have to invest 1.2356 US dollars. Any change in the currency value will usually be seen on the fourth figure after the dot, mainly known as a pip. The spreads, gains and losses will usually be presented in pips.

Other terms of forex

Some other terms of the forex are Going long and Going short, which stand respectively for ‘buying’ and ‘selling’. A trader who speculates the market will rise is called a ‘Bullish Trader’, while on the other side stands the ‘Bearish Trader’, who is more on the defensive side. In accordance, the terms ‘Bull Market’ and ‘Bear Market’ are used to describe the way the market goes.

A bull market is on the rise, and a bear market is usually decreasing. Experienced traders will decide their strategy depending on the market trends, and will make sure to follow all relevant events so they can precede the changes in the market and gain profit.

In the past, every trader called his broker and instructed him on actions to be made. Today the trades are done directly by the client on a software, called a trading platform like the well known Meta trader 4. Many of the platforms are available for computer, internet and mobile. Every trader has his own strategy, and he should find the platform that will enable him to perform it in the best way possible, i.e. that he will feel most comfortable in.

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Range of Forex Markets

AvaTrade UK traders enjoy a wide variety of currency pairs to trade from. We offer access to over 50+ forex pairs, including exotic pairs, minor pairs, and of course, major pairs. We also offer cryptocurrency trading offering exposure to Bitcoin trading & other popular digital currencies including Ripple, Litecoin and Ethereum. You can now, for example, speculate on the price movements in Bitcoin against the US dollar, trading in both directions.

Beyond currencies & digital currencies, we also offer multiple CFD markets, allowing you to speculate on the price of bonds, commodities, indices, and the stocks of major corporations globally. By being exposed to so many different market opportunities, you can diversify your trading portfolio in a way that, until recently, was only dreamed of by retail traders.

In order to benefit in the global economy, you need to trade like the professionals do.
Take advantage of market opportunities where they present themselves, regardless of geographical boundaries.

Trade forex Anytime, Anywhere

One of the biggest benefits of trading currency markets is that they trade 24 hours a day. This allows you the ability to trade regardless of what your work schedule is. As the different exchanges open around the world at different times, this present forex traders with different trading opportunities. With the forex markets open 24 hours a day, you are able to trade the markets at your leisure, & when it is convenient for you.

Also, as long as you have an Internet connection, you have the ability to trade currencies. A mobile application on your phone works just as well as a desktop platform does & AvaTrade offers a mobile version of our platform to ensure that our traders have the flexibility & convenience to trade from anywhere and at any time.

What affects the Forex Market?

The forex market has high liquidity, due to an elevated supply and demand rate. Traders apply transactions based on financial events, as well as general events. Naturally, when a currency will be on a high demand, its value will raise comparing to the other currencies, and vice versa.

Financial events are frequent statements by countries, central banks or other financial institutions, on topics such as unemployment rate, manufacture numbers and many more. A decrease in a country’s unemployment rate can indicate that the economy is strong, and this can lead to an increase of the local currency. If it’s a major one it will affect other currencies as well. Before the event takes place traders speculate on its content, and based on these speculations open positions. All the events can be seen and followed on the economic calendar.

Example

Going back to the popular trading pair – the EURUSD. Once logged into the platform the trader will check the ask and bid prices; for the purpose of the example they will be 1.2356 (ask), and 1.2359 (bid). The difference, as noted, is of 3 pips and this will go to the broker.

If the trader believes the Euro will go up he will enter a ‘buy’ command. Then he will be required to select an amount – say 10,000 units. The price for that is $12,356, and using leverage it comes to $30.89. If the market responded the way the trader predicted and the Euro rose from 1.2356 to 1.2360 – 4 pips, the trader would have made a profit from this trade.

Why Trade Forex with AvaTrade UK?

You must be able to trade forex with confidence.
Profits can never be guaranteed, and any type of trading has its advantages and disadvantages, as well as the risk of losing funds. At AvaTrade UK we are committed to a set of values which define our relationship with our customers. As such, we provide the best trading experience possible, offering top notch multilingual customer service and the most advanced and user-friendly trading platforms.

You can also use our teaching materials in the education tab on out site. You will find there a wide collection of articles, video tutorials, and many more tools that will assist you in every step of the way. We know trading might be a bit overwhelming and even scary at times, but we do all we can to make sure you are fully prepared to begin trading in the real world.
These tools and many others allow you to trade peacefully and know that AvaTrade has your back. Everything we provide is on the highest possible level, and we go to great measures to constantly innovate and improve them for you.

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