Forex trading, also called foreign exchange or FX trading, is the buying and selling of currencies, like USD/INR to profit from exchange rate changes. Its one of the most active markets globally with around $6.6 trillion traded daily by individuals,companies,and banks.Forex trading in India can be conducted through recognized stock exchanges like the national stock exchange and the Bombay stock exchange. Unlike stock markets which have a central location. The forex market is decentralized and operates 24 hours a day, five days a week, spanning across major financial centres worldwide. Investors can trade in FOREX by utilising the online trading platforms offered by brokers.
HOW DOES FOREX TRADING WORK
Now that you know FOREX trading’s meaning. It is important to know how it works. Here is a detailed understanding;
Key Concepts:
- Currency Pairs: Forex trading is done in pairs, such as EUR/USD (Euro/US Dollar), GBP/JPY (British Pound/Japanese Yen), etc. The first currency is the base currency, and the second is the quote currency.
- Leverage: Forex markets allow traders to use leverage, meaning they can control a large position with a small amount of capital. This can amplify both potential profits and losses.
- Bid and Ask Price: The bid price is the price at which the market is willing to buy a currency pair, and the ask price is the price at which the market is willing to sell it.
- Pips: A pip is the smallest price movement in a currency pair. It typically refers to the fourth decimal place in most currency pairs (except for pairs involving the Japanese Yen, where it’s the second decimal place).