Home Investment What is Forex and how does it work

What is Forex and how does it work

Trading Forex is an awesome way to make a lot of money, as long as you know what you’re doing and are a disciplined and vigilant trader. It’s precisely the goal of this article, after which you will have the basics you need to get started in Forex. Also, make sure to read brokerage reviews such as Soltechx Review in order to see what brokerages offer in terms of trading instruments, leverage ratio and minimum deposits.

The basics of Forex trading

First off, what is Forex? The word is an abbreviation of “Foreign Exchange”, which denotes the foreign exchange market. It is a market where many players (banks, individuals, trading professionals, certain companies, hedge funds, brokers, etc.) buy and sell currencies. To understand what a currency is, imagine a country like a business. In this case, its currencies become its shares! Their value fluctuates over time under the influence of multiple factors, including political and economic events, inflation, economic growth, and especially supply and demand.

 If you want to understand how Forex works, it is very important to understand how currency pairs and their quotes work. For example, the most used pair is the EUR / USD pair. In this notation, the euro is referred to as the base currency, and the dollar is the counter currency. The quotation is denoted “a / b”, a and b being two numbers: b indicates the price at which one can buy a euro in dollars (it is called the bid price), while a is the price at which one can sell a euro in dollars (the ask price).

Trading Forex is buying and selling currencies by speculating on the change in their price in order to make a profit. For this, one needs to master financial analysis, whether fundamental or technical and know how to use the various analysis tools available to traders by their brokers. There is jargon and vocabulary used in Forex trading that is also necessary to be familiar with in order to gain a good understanding of the world of Forex trading and to be successful.

The choice of broker

 When you are trading Forex, it is absolutely essential to use a reliable broker who will carry out the transactions you want and who will provide you with the most precise tools to allow you to make the best decisions. Indeed, the broker is the intermediary between you and the Forex market, and it is also your advisor through its analytical tools, hence the importance of choosing a good broker. The most important criteria to evaluate in your choice is the regulation and reputation of the brokerage service.

Regulations and reputation

This is the first thing to check when choosing a broker to ensure reliability and avoid scams. Check that the broker is approved by the Financial Conduct Authority in the United Kingdom and by the Cyprus Securities and Exchange Commissions in Cyprus or Autorité des Marchés Financiers in France. Also, find out about their online reputation, which must be good.

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