What Is Forex Investments? (Simple Definition)
If you want to know what forex investment is and are searching for a clear answer, read this article. You probably know that the forex market is an abbreviation of the term Foreign Exchange Market which means foreign currency exchange market, aka Forex or FX. The forex market is a newly emerging derivative market that emerged after markets such as bonds and the stock market. Forex or the global currency market was created in 1971, and thanks to the advancement of technology, the growth and development of this market began in 1998. It might be interesting for you to know that from the beginning of the forex market until 1990, this market was monopolized only by central banks, large financial institutions, commercial banks, and investment companies, and only these institutions could make transactions and ordinary people had no access to it, but after 1990, with the development of the Internet and technology, the general public had access as well, and many enthusiasts worldwide, were attracted to Forex due to the nature and operation of this market.
اToday, the forex market is considered one of the most profitable financial markets globally that attracts many enthusiasts and investors, and the number of forex market participants is increasing daily.
If you have recently decided to work in this market and earn money, and therefore, you have started training and acquiring basic information, and want to know what forex investment is, stay with us until the end of this article.
Contents
Forex Investment
As mentioned, the forex market is an international market and the world's largest financial market, where the money of foreign countries is traded, and the activists profit from the price difference between two different currencies. With foreign currency trading in forex, no currency is physically available to you, but you only buy and sell numbers and gain profit or incur losses. The nature of Forex trading is that you buy or sell one currency for another currency. For example, if you want to buy dollars, the requirement to buy dollars is to pay euros, which means you give euros and receive dollars. That is the way to trade currencies in Forex. It is worth noting that the liquidity volume in forex is very high, and the amount of money trading in it is unlike any other market. In other words, Forex is the most liquid market in the world, which is considered a great advantage.
Forex Working Hours
Forex is a 24/5 market. To be more precise, forex working days are five days, and you can start trading from Monday until Friday. Therefore, Forex is closed on Saturdays and Sundays. In addition to weekends, Christmas, New Year's Eve, and Thanksgiving are other official holidays that Forex is closed. Forex's working hours are 24 hours, and you have no time limit for trading. If you are working and you don't have access to the market until the evening, you can trade in forex after work and have a little rest. Learn about Financial markets and trading symbols in forex and their exact trading hours.
You should know that the forex market has Four trading sessions according to the major currency exchange centers and different time zones, which respectively include Sydney, Japan, London, and New York sessions and are known as the Tokyo, London, etc., markets, that each trader deals with his desired trades in these meetings according to their strategy and schedule, and there are no restrictions for people anywhere in the world.
How Trading in Forex Works?
Forex transactions are similar to exchanges done when traveling abroad. A trader buys one currency and sells another, and the exchange rate constantly fluctuates based on supply and demand, therefore, the trader gains profit and loss from these fluctuations and the price difference between the two currencies. That is why we say that transactions in forex are in the form of currency pairs, and as an example, the pound/dollar is displayed as GBPUSD.
Note that to access market transactions, you must register in one of the forex brokerages or so-called a broker and open a trading account. By opening an account with the broker, you can access trading currency pairs, metals, cryptocurrency, and stocks of different companies in the market. Trendo Broker provides the best services for trading in forex. To register in Trendo, download the Trendo application and register in the broker fast and easily. Click to download the Trendo app.
A forex broker is a financial institution that is an intermediary between traders and forex and is a platform that provides the possibility of buying and selling foreign currencies, and you will not be able to do any transactions in forex without registering with the broker. A broker is the smallest member active in the forex financial market and a platform for conducting transactions at the retail level. As you know, the broker is a financial company that provides various financial services to Forex traders. Therefore, the first step to entering the forex financial market is registering with a broker to access currency pairs transactions.
What is Traded in Forex?
As mentioned earlier, forex means a foreign currency exchange market. The currency of different countries is traded in forex. The buying and selling of currencies are binary or so-called currency pairs shown as USD/CAD, EUR/USD, or USD/JPY. The currency pairs in the market are divided into different categories, including major currency pairs, secondary currency pairs, and regional and exotic currency pairs.
The most popular currency of the forex market is the US dollar, which is involved in most transactions known by the USD abbreviation. The market's second most popular and traded currency is the European Euro shown as EUR. After these two, the Japanese yen (JPY), British pound (GBP), Australian dollar (AUD), Canadian dollar (CAD), Swiss franc (CHF), and New Zealand dollar (NZD) are among the most traded forex currencies.
Of course, in the forex market, in addition to foreign currencies, there are cryptocurrencies such as Bitcoin, Ethereum, Tether, etc., as well as raw goods and crude materials, indices of some famous stock exchanges, prominent companies' shares such as Google and Apple, etc., are also traded.
Major Currency Pairs
The main currency pairsof the forex market are currency pairs with the US dollar on one side. More than 80% of market transactions are on major currency pairs. The major currency pairs have high liquidity and include EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, and AUD/USD. Consider a currency, the first two letters represent the country, and the third letter is the first letter of that country's currency, for example, USD is the US dollar, CAD is the Canadian dollar, CHF is the Swiss franc, JPY is Japanese yen, EUR is European euro, AUD is the Australian dollar, NZD is New Zealand dollar, and GBP is the British pound. Professional market participants' advice is to trade mostly on major currency pairs.
Secondary Currency Pairs
Secondary currency pairs are those in which the US dollar is not present on one side, and the liquidity of secondary currency pairs is lower than that of the main currency pairs. The most important secondary currency pairs include EUR/GBP, EUR/CHF, and GBP/JPY.
There are some currency pairs in the market where a strong currency, such as the US dollar, is placed against a newly emerging weak currency. For example, USD/PLN (US Dollar vs. Polish Zloty) and GBP/MXN (Sterling vs. Mexican Peso). These are known as exotic currency pairs. They have very low liquidity, and as a result, they have high spreads and are less noticed by traders.
Some currency pairs are based on the region, for example, EUR/NOK (Euro and Norwegian krone), AUD/NZD (Australian dollar and New Zealand dollar), and AUD/SGD, which are called regional currency pairs.
Commodity Market in Forex
Commodity Market is a market for trading raw goods and materials. Goods are divided into two categories: hard goods and soft goods. Oil and gold are hard goods, and corn, wheat, soy, sugar, coffee, and meat are soft goods.
The types of commodities in the forex market fall into the following three categories
- Expensive metals such as gold, silver, palladium, platinum, and copper
- Energy sources such as oil and gas
- Commodities such as wheat and corn
Gold in Forex
One of the most popular symbols traders trade in Forex market brokers is the symbol of gold or the global ounce (XAUUSD). Gold is popular in the forex market for reasons such as suitable fluctuations during the day and high analysability in terms of technical and fundamental, and has become one of the symbols in which most trades are done in it.
Oil in Forex
One of the main assets of the world, which most of the country's economy depends on, is oil, known as black gold. Trading oil in the forex market is popular for reasons such as good fluctuations to create profitable trading opportunities and because oil is influenced by world news and fundamentals. Oil traders should pay attention to the world news and speeches about energy, such as OPEC meetings and the world's industrial situation, etc. because the oil movements are affected by world events. It is interesting to know that there are more than 160 types of crude oil in the market. We have mentioned the most important ones below:
WTI Oil: This oil is also known as American crude oil.
Brent Oil: Brent or the North Sea crude oil is an important measure of oil prices worldwide.
OPEC Oil: This oil is a combination of seven types of crude oil from different countries and belongs to OPEC or the Organization of Petroleum Exporting Countries. The price of this oil is usually lower than WTI or Brent Oil.
Stock Trading of Prominent US & European Companies in Forex
After currency pairs, prominent US and European companies' shares are among the most attractive and highly traded forex items. When trading these companies' shares, you do not become the company's shareholder but benefit from the changes in the stock price in both directions, however, you do not own the shares in question.
Indices Trading in Forex
Indices show the value of a country's set of stock exchange companies or the value of a currency against other currencies. The most important forex indices are the Dow Jones Industrial Average and different countries' stock indices, such as Australia 200 with the symbol S&P/ASX 200, USA500 index, and Nasdaq (NASDAQ).
Bonds in Forex
Bonds are another forex trading symbol traded through CFD contracts, for example, the 10-year US bond with the US10Y symbol.
Cryptocurrency Trades in Forex
Cryptocurrencies are other items that are tradeable in forex. The most important cryptocurrencies in Forex include Bitcoin with the symbol BTC, Ethereum with the symbol ETH, Cardano with the symbol ADA, Litecoin with the symbol LTC, etc.
Summary
You can operate in the forex market in two ways, directly and indirectly. Direct entry into the forex financial market is suitable for people with enough time and opportunity for trading. After acquiring the necessary training and skills and working for a few months on a trial basis, they can engage in real trades. In between, some people don't have the time to get training and trade in the market, but they want to enter part of their capital and assets in the forex market. Our advice to them is to go through a trusted, reliable broker with an excellent specialized team to act with. In other words, they should provide their capital to the intended broker so they can manage it. Getting help from experienced brokers reduces risks and possible losses to a great extent and is only suitable for people who do not have the time or knowledge to operate in the forex financial market.
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