How Forex Trading Works:
Currency Pairs: In forex trading, currencies are traded in pairs, such as EUR/USD (Euro/US Dollar). The first currency in the pair is called the base currency, and the second one is the quote currency.
Example: In EUR/USD, EUR is the base currency, and USD is the quote currency.
The price of a currency pair shows how much of the quote currency is needed to buy one unit of the base currency.
Buy and Sell:
Buying: If you think the base currency will strengthen against the quote currency, you buy the currency pair (e.g., buy EUR/USD).
Selling: If you think the base currency will weaken, you sell the currency pair (e.g., sell EUR/USD).
Pip (Percentage in Point): A pip is the smallest price movement in a currency pair, often equal to 0.0001 for most pairs. It measures how much the price of a currency pair has changed.
Example: If EUR/USD moves from 1.1100 to 1.1101, it has moved by 1 pip.
Leverage: Forex brokers offer leverage, which allows traders to control a large position with a smaller amount of capital. However, leverage increases both potential profits and losses.
Market Hours: The forex market operates 24 hours a day, five days a week, because currencies are traded globally. However, the market is most active during certain hours, such as when the London and New York sessions overlap.
Types of Currency Pairs:
Major Pairs: These pairs include the most traded currencies, such as EUR/USD, GBP/USD, and USD/JPY.
Minor Pairs: These pairs involve currencies from smaller economies and don’t include the US dollar, such as EUR/GBP or AUD/JPY.
Exotic Pairs: These are less commonly traded pairs, often involving a major currency and one from an emerging market, like USD/TRY (US Dollar/Turkish Lira).
Example of Currency Pair in Action:
If EUR/USD is trading at 1.1500, it means 1 Euro is worth 1.15 US Dollars.
If you think the Euro will strengthen against the Dollar, you might buy EUR/USD. If it rises to 1.1600, you can sell it and make a profit of 100 pips.
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