The first twenty years of the 21st century have undoubtedly been marked by major progress. Whether that be societal, cultural, technological, or financial. One of the most prominent examples of progress in the financial sector is the wider availability of methods to trade.
Participation on the various trading markets has become a lot easier. In large part, this is thanks to the advancements in internet technology. Online trading platforms have made it possible for anyone to access the market and try their hand at trading various assets.
In 2022, while most people are likely familiar with the stock market, some might be surprised to learn that it is not the most participated on market today. That honor goes to the foreign exchange market, often called forex. So, just what is the forex market? How does it work? In this article, we will give a brief introduction about forex and go through a few things you need to know.
What is Forex?
The first question on everyone’s mind, naturally, is going to be what is forex? As we said, forex is an abbreviated form of foreign exchange. But what is foreign exchange? Some might be surprised to find out that foreign exchange is something that they, themselves, have been participating in for a long time. In the simplest terms, forex refers to exchanging one form of currency for another. For example, when you travel from the United States to the United Kingdom, it is necessary to exchange United States dollars for the British pound sterling. This transaction is a part of the foreign exchange market.
The next question to answer is how you yourself can participate in the foreign exchange market. The answer, once again, is quite simple. Many online trading platforms nowadays are automated for your convenience. And you will find that the best automated trading platforms in the UK offer the option of trading currencies for other currencies. But, the question now remains, “Why would I do this?”
Why Trade Currencies?
The value of FIAT money, while a lot more stable than cryptocurrency, is still quite volatile. A dollar could be equal to the Euro one day, double its value the next, and then plummet to half of a Euro on the third day. Forex traders attempt to take advantage of this rapid increase / decrease in value, in an attempt to net a profit.
Let us take a practical example. Hypothetically, let us assume that 1 Euro = $1. Forex traders from the United States would then use their dollars to purchase 10 Euros. At some point, after the transaction has been made, the Euro’s value doubles, so that 1 Euro = $2. At that point, the forex trader has made a profit, as his 10 Euro are now worth $20.
Hopefully, this example has made it a bit clearer why forex trading is done and what makes it so popular on the market today.
How Forex Trading Works
Now that you are aware of what forex is, and why it is popular, all that is left is to discuss how it actually works. The process is not as simple as one would think, however, it isn’t particularly complex either. To simplify things, the forex market works by pairing up currencies from different countries, which then traders can exchange. Basically, all trading done on the forex market, is done through these currency pairs.
The forex market encapsulates most currencies from around the world, however, there are eight that remain as the most prominent. The following eight currencies are the ones that see the most traffic and enjoy major popularity when it comes to forex trading:
- The European Union’s Euro
- The United States’ Dollar
- Canada’s Dollar
- Australia’s Dollar
- Japan’s Yen
- China’s Yuan
- Switzerland’s Franc
- Great Britain’s Pound Sterling
As we said, any nation’s currency can be traded on the fore market. However, the aforementioned eight currencies are the ones that see the most action, and the most common and popular pairings involving these 8 currencies are as follows:
- USD / JPY
- USD / GBP
- USD / CHF
- USD / CAD
- AUD / USD
- NZD / USD
These currency pairs are the most common and most popular and the ones that draw in the most traders from all over the world.
Conclusion
Forex trading is not a new phenomenon. It has been around for close to a century now, and its popularity has only been growing. However, some people are still unfamiliar with what it is and how it works. It is for those people that we thought we would give a short and sweet introduction on what forex is, how it works, and how anyone can participate in the market.
We also wanted to give you some information on the most popular currencies to trade and the most popular currency pairings from all over the world. Best of all, forex trading can be done from the comfort of your own home. So, if you’ve ever had a passing curiosity, we hope this article has helped you realize where to start.
*Collaborative post
Debz Louise is a plus-size blogger based in Yorkshire. Behind many nationwide campaigns such as #WeaAreTheThey & winner of Best Blogger at the UK Plus Size Awards, she talkas about life as a plus-size 40-something woman in South Yorkshire.
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