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What is Forex trading?

Even if you're new to forex, you may have traded currencies before. For example, if you've ever travelled to another country, you had to exchange your native currency for that of the country you were visiting.

So you know that your one pound is not equal to one unit of another country's currency; its value was either more or less. But exchanging currencies isn't just for travellers. The price difference is something you can trade.

Forex

Also known as foreign exchange or currency trading, forex is one of the largest and most liquid financial markets in the world. While the worldwide bond and stock markets have a daily volume in the billions of dollars, the forex market has a daily volume of over US$4 trillion. Naturally, this provides traders with some significant advantages.

In forex trading, traders hope to generate a profit by speculating on the value of one currency compared to another. This is why currencies are always traded in pairs - the value of one unit of currency doesn't change unless it's compared to another currency.

You'll hear of everyone from big banks and hedge funds to small- and medium-sized traders talking forex. And since the markets are open longer than traditional markets, you can trade when it's convenient for you.

Trade forex 24 hours

Forex is a 24-hour market, open five days a week - from Sunday afternoon all the way through to late Friday night (GMT). Major financial centres around the world trade at different hours and so as one market closes for the day, another opens, so there is almost always a market for foreign exchange.

Trade forex with liquidity

Because the forex market is so large, it's also extremely liquid. This means that in normal market conditions, you can usually trade with instant execution.

Trade forex in rising and falling markets

Unlike in many other financial markets, where traders can only profit primarily when the market is rising, there are no limitations on shorting currencies. Forex traders can buy (go long) or sell (go short) currency pairs. That way, they can find trading opportunities in both rising and falling markets as well as short-term intraday movements.

Trade forex with leverage

In forex trading, a small deposit can control a much larger contract value - this is called leverage. With a 100:1 leverage, you control £100 worth of currency for every £1 you use to trade. However, trading foreign exchange with such leverage carries a high level of risk and may not be suitable for all investors - the high degree of leverage can work against you as well as for you.

Trade forex in high volumes

Because the foreign exchange market is a multi-trillion-dollar market, its high volume provides extreme liquidity, so no single entity or group can skew values, corner the market, or create havoc for traders.

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