Sarat Chandra IAS Academy – UPSC Mains Answers

What is trading?

While the average investor probably shouldn’t dabble in the forex market, what happens there does affect all of us. The real-time activity in the spot market will impact the amount we pay for exports along with how much it costs to travel abroad. Forex is traded by what’s Forex news known as a lot, or a standardized unit of currency. The typical lot size is 100,000 units of currency, though there are micro and mini lots available for trading, too. Investors will try to maximise the return they can get from a market, while minimising their risk.

forex trading meaning

This is an alert that notifies you that you need to make an additional deposit in order to increase your margin to keep remaining positions active. “Margin” refers to the amount of account balance required in order to maintain an open position. This term refers to when a trade is put in motion and subsequently completed.

What is trading?

The US dollar is considered the most popular currency in the world, and constitutes around 60% of all central bank foreign exchange reserves. So it’s no surprise the US dollar is evident in many of the ‘majors’ , which make up 75% of all forex market trades. As a beginner, it may be wise to trade the majors, as they’re known to be the most liquid and least volatile of the currency pairs.

forex trading meaning

Market moves are driven by a combination of speculation, economic strength and growth, and interest rate differentials. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

Risks of Forex Currency Trading

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  • Forex trading is the process of speculating on currency price movements, with the aim of making a profit.
  • Say, for example, that inflation in the eurozone has risen above the 2% level that the European Central Bank aims to maintain.
  • Once the trader sells that currency back to the market , their long position is said to be ‘closed’ and the trade is complete.
  • Unlike the regulated futures and options exchanges, there is no central marketplace in the retail off-exchange forex market.
  • Automation of forex markets lends itself well to rapid execution of trading strategies.

Candlestick charts were first used by Japanese rice traders in the 18th century. They are visually more appealing and easier to read than the chart types described above. The upper portion of a candle is used for the opening price and highest price point used by a currency, and the lower portion of a candle is used to indicate the closing price and lowest price point. A down candle represents a period of declining prices and is shaded red or black, while an up candle is a period of increasing prices and is shaded green or white. In a position trade, the trader holds the currency for a long period of time, lasting for as long as months or even years.

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