Because of this, the prices of assets on Forex are determined exclusively by the forces of supply and demand. The Forex market can be thought of as a large exchange booth where currencies are bought and sold against each other. If you know, for example, that the dollar is going to forex en in value, you buy dollars right now, wait for the currency to rise in value and then sell your dollars for another currency later at a higher price. The fact that the price of currencies is in constant fluctuation is what makes earning money on the Forex market possible at all times.
Since currencies are priced relative to each other, a loss of value in one currency necessarily entails a gain in another currency. This brings us to the idea of a currency pair, one most important concepts in trading currencies. A currency pair simply represents the price of one currency in terms of another. For example, when it is said that “EURUSD is 1. 2505” it means that 1 euro costs 1. The Forex market is open 24 hours a day from Monday to Friday.
Although there aren’t necessarily any trading sessions, like with stock exchanges, banks in different parts of the world have different trading hours. In the table below, you can see when Forex trading opens and closes at banks around the world. When trading, you should take these times into account, as markets opening and closing can have an impact on the level of trading activity. Other market participants hold accounts in these banks from which they conduct their own business. Central banks regulate the currency market and can influence demand for a currency by increasing or decreasing supply of a given currency. Companies that do business abroad use currency for settling accounts with their foreign partners. Brokerage companies are intermediaries which connect buyers and sellers.
Thanks to the development of the internet, the popularity of trading currencies continues to grow with every passing year. Every currency has a three-letter code. For example, the currency pair United States dollar and euro looks like this: EURUSD. The difference between Ask and Bid is called the spread. The volume of a trade is measured in units called “lots. The standard volume for a trade on the Forex market is 100,000 units of the base currency. As recently as several years ago, a trader had to have a lot of money on his trading account.
Now, however, thanks to leverage, this is no longer the case. Leverage means that you can trade with much larger sums of money than you actually have at your disposal. The funds you do have are used in a fashion similar to a security deposit. The margin on your account is the money available to secure the use of leverage.