**Mastering Forex Trading: A Comprehensive Guide to the Foreign Exchange Market**
*Based on information presented by Justin Bennett (YouTube Channel: Daily Price Action) and additional research.*
—
## Introduction to Forex Trading
The Foreign Exchange Market, commonly known as Forex or FX, is the largest and most liquid financial market globally. Unlike stock markets with centralized exchanges, Forex operates via a network of banks, brokers, and financial institutions, facilitating transactions 24 hours a day, five days a week.
Forex trading involves buying one currency while simultaneously selling another and speculating on the change in exchange rates. As an over-the-counter marketplace, it allows individuals, institutions, and governments worldwide to participate.
—
## How Forex Trading Works
In Forex, currencies are quoted in pairs — for example, EUR/USD or GBP/JPY. The first currency in the pair is known as the base currency, and the second is the quote currency. The price of a currency pair indicates how much of the quote currency is needed to buy one unit of the base currency.
*Example*: If EUR/USD is quoted at 1.1000, it means 1 euro equals 1.10 US dollars.
**Key Elements:**
– **Bid Price**: The price at which the market (or your broker) will buy a base currency in exchange for the quote currency.
– **Ask Price**: The price at which the market will sell a base currency in exchange for the quote currency.
– **Spread**: The difference between the bid and ask price.
—
## Major Currency Pairs
The majority of Forex trading volume is concentrated in a few “major” currency pairs, which include:
– EUR/USD: Euro/US Dollar
– USD/JPY: US Dollar/Japanese Yen
– GBP/USD: British Pound/US Dollar
– USD/CHF: US Dollar/Swiss Franc
– AUD/USD: Australian Dollar/US Dollar
– USD/CAD: US Dollar/Canadian Dollar
– NZD/USD: New Zealand Dollar/US Dollar
These pairs are characterized by high liquidity and generally lower spreads.
—
## How to Trade Forex
FX trading involves predicting whether a base currency will strengthen or weaken against the quote currency. If you expect the base currency to appreciate, you “go long” (buy); if you anticipate it will depreciate, you “go short” (sell).
**Steps to Placing a Trade:**
1. **Choose a Currency Pair**: Decide which pair to trade based on analysis or news.
2. **Determine Trade Size**: Standard lot sizes are 100,000 units, but mini (10,000 units) and micro (1,000 units) lots are available.
3. **Analyze the Market**: Use technical and fundamental analysis to form a view.
4. **Place Buy/Sell Order**: Enter your trade through a brokerage platform.
5. **Set Stop Loss and Take Profit**: Manage risk and reward by pre
Read more on AUD/USD trading.