What do you know about Forex before investing?| Foreign Exchange FX, better known as Forex, is the market with the highest trading volume in the world. It is open 24 hours a day, Monday to Friday, while it is closed on weekends.
On each day, the volume of transactions recorded is an average of US$ 6 billion traded between governments, banks, corporations, and speculators. But apart from all that, it is the market preferred by traders due to the hours and less volatility in the movements of the pairs.
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What to know before investing in Forex?
The first thing is to know what is traded on the biggest market in the world. The answer is: foreign currency. Here, currencies are traded and invested in the long and short term.
For example, when buying the long-term EUR/USD pair, you are betting on the value of the euro against the dollar, although there is also the option to shorten the index to bet on the appreciation of the dollar against the euro. This is undoubtedly the most used pair on Forex.
The most important thing is to know the couples, which can be summarized into three: major, minor, and exotic. The main currencies are the most traded currencies on the market, such as the US dollar (USD), the euro (EUR), the Japanese yen (JPY), the pound sterling (GBP), the Swiss franc (CHF), the Canadian dollar (CAD), the Australian dollar (AUD), and the New Zealand dollar (NZD).
Therefore, pairs formed by any of these combinations are known as prime pairs. For example, EUR/CAD or GBP/USD.
You also need to know how these currencies are traded. When we look at the price of the euro-dollar (EUR/USD), we see the exchange of 1 euro for x dollars.
So if we see 1,230, it means that 1 euro is equivalent to 1,230 dollars. At the time of purchase, we will see two concepts: ask and bid. The price displayed in Ask is the price at which you can buy the asset, and Bid is the price at which you can sell it.
Executable Forex Trades
Basically, there are two of them: short and long. When we are long, it means that we are betting on the appreciation of the first currency in relation to the second, while if we are short, what we are doing is considering that the first currency will depreciate in relation to the second.
Both operations can be carried out within the time period deemed appropriate according to our criteria. If we believe that the dollar will appreciate against the euro, it is normal that we sell the euro-dollar. However, this market is mainly used by retail investors for short-term transactions and closes in hours or days.
Forex is a very large and not overly complex market; it is the most used for trading operations. But if you’re just starting out, it’s best to learn everything you need to know about technical analysis and then open a “demo” account with the appropriate broker and start practicing before investing real money.