If you want to get involved in the financial markets, forex trading could be a good option. At first, Forex Trading could sound difficult to understand. However, if you are learning how to trade and the different trading instruments available, we can tell you that you will not have problems understanding what Forex is.
The Forex market is a global marketplace that allows investors, companies and governments to get access to foreign currencies. It is possible for participants to buy or sell currencies from all over the world.
Even if you are going on a trip abroad and you buy the local currency at an exchange or through your bank, you are participating in the Forex market. This happened without you even realizing you were part of this market.
In addition to it, if you are buying an imported good, the company in charge of importing this good needs to make a currency exchange. They need to pay the producer of the foreign good in their local currency. If this good comes from the United States and you live in the UK, the company will have to sell GBP and buy USD in the Forex market.
Additionally, retail and also institutional investors can get access to the Forex market in order to speculate with the price fluctuations of currencies. This can be a good way to get extra income at the end of the month. However, trading might not be so easy. This is why ForexSignals.io is working to offer users the best signals to trade in the Forex Market.
There are different trading pairs that you can find in the Forex market. As we mentioned before, you could exchange GBP for USD. This is going to be done through the GBP/USD trading pair. But this is certainly not the only one.
You can also travel to Europe or you want to hedge against Brexit uncertainty buying euros (EUR). The trading pair you want to use is the GBP/EUR. At the moment of writing, 1 GBP equals 1.12 EUR.
But there are many other trading pairs. Almost every currency in the world has its own pairs. Nevertheless, not all the currencies around the world have the same liquidity. What do we mean with liquidity? We will tell you in the next section.
Liquidity makes reference to the availability of an asset in the market. If you buy or sell EUR, you can be sure there will always be buyers and sellers for the GBP or USD pairs. You can easily exchange your USD or GBP for EUR and vice-versa.
However, smaller trading pairs such as Mexican peso (MXN) and Philippine peso (PHP) might not have large liquidity. The smaller the country and an economy, the smaller the liquidity.
Furthermore, there are some small countries that despite their economies not being so large they have relatively large liquidity. For example, the New Zealand dollar (NZD) can easily be exchanged for other major currencies such as the Euro, the British pound or the U.S. dollar.
You will discover that to trade in the Forex market you do not need to follow the major pairs, but also smaller ones. The major forex trading pairs in terms of trading volume include the following:
Other trading pairs include the following:
These last three are called “Commodity Currencies.” This is because these economies receive a large influx of money when commodity prices grow. The contrary happens when the price of commodities falls.
Additional trading pairs:
As you can see, not all the trading pairs include the U.S. dollar. This is because there are some markets for smaller pairs such as EUR/CHF or EUR/JPY.
Nevertheless, some other and less liquid pairs are also available. You could trade all these pairs and try to increase your funds at the end of the trading period you are analysing. This can help you get extra income at the end of the month.
ForexSignals.io will be ready to help you through this new adventure that would allow you to trade in one of the largest and most advanced markets in the financial world. You can start doing so in just a few simple steps and we tell you how in our How to Start Trading Forex guide.