**Forex Trading: A Beginner’s Complete Guide**
*Based on content from the video by Money Masters on YouTube: “Forex Trading for Beginners” and additional industry best practices.*
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Foreign Exchange trading, often referred to as Forex or FX trading, involves buying and selling of currencies with the aim of making a profit. As the largest and most liquid financial market in the world, Forex trading sees more than $6 trillion traded daily. Unlike stock markets that operate on strict schedules, Forex is open 24 hours a day, five days a week, providing flexibility for traders worldwide.
**Understanding the Forex Market**
Forex, or the foreign exchange market, is a global decentralized marketplace where currencies are traded. Rather than being facilitated by a centralized exchange, transactions are completed over-the-counter (OTC) directly between parties, often brokered by commercial banks, central banks, or retail FX brokers.
The essential function of the Forex market is to facilitate international trade and investment by enabling currency conversion. This market is responsible not only for facilitating imports and exports but also for speculating on currency price movements.
**Key Features of Forex Trading**
– **Liquidity**: With substantial trading volumes, Forex is the most liquid market globally.
– **Accessibility**: Individuals can access trading platforms from anywhere with an internet connection.
– **Leverage**: Forex brokers often offer high leverage, allowing traders to control sizeable positions with minimal capital.
– **Variety of Trading Pairs**: There is a vast array of currency pairs, divided into majors, minors, and exotics.
– **Low Transaction Costs**: Many brokers offer tight spreads and low fees compared to other financial markets.
– **Open 24/5**: Trading is available all day, five days a week, due to global time zones.
**How Forex Trading Works**
Every Forex trade involves two currencies, forming a currency pair. The first currency listed is the *base currency*, and the second is the *quote currency*. The quoted price reflects how much of the quote currency you need to buy one unit of the base currency.
For example, with EUR/USD at 1.1200:
– EUR is the base currency.
– USD is the quote currency.
– It takes 1.12 US Dollars to purchase 1 Euro.
Traders buy a currency pair if they believe the base currency will appreciate against the quote currency, or sell if they expect it to depreciate.
**Major Currency Pairs**
These pairs involve the world’s most traded currencies and almost always include the US dollar.
– EUR/USD (Euro/US Dollar)
– USD/JPY (US Dollar/Japanese Yen)
– GBP/USD (British Pound/US Dollar)
– USD/CHF (US Dollar/Swiss Franc)
– USD/CAD (US Dollar/Canadian Dollar)
– AUD/USD (Australian Dollar/US Dollar)
– NZD/USD (New Zealand Dollar/US Dollar)
**Minor and Exotic Pairs**
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Read more on AUD/USD trading.