What Is Forex?
The foreign exchange market – also known as forex or the FX market – is the world’s most traded market, with turnover of $7.5 trillion per Day.
To put this into perspective, the US stock market trades around $553 billion a day; quite a large sum, but only a fraction of what forex trades.
Forex is traded 24 hours a day, 5 days a week across by banks, institutions and individual traders worldwide. Unlike other financial markets, there is no centralized market place for forex, currencies trade over the counter in whatever market is open at that time.
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How FX Trading Works
Trading forex involves the buying of one currency and simultaneous selling of another. In forex, traders attempt to profit by buying and selling currencies by actively speculating on the direction currencies are likely to take in the future.
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World’s Major Currencies
What Is Spread In Forex?
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Spread is the difference between the ask and bid prices
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A fixed spread is the permanent amount of spread set by the broker
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A floating spread changes based on market movements and is less predictable
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Yield spreads are used to calculate the spread rate in percentage
Fixed Spreads
Fixed is a Forex trading spread which stays the same no matter what happens to the market. It is incredibly advantageous for traders who want to know exactly how much they will be charged based on every trade that they make.
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Floating Spreads
Floating spreads are the exact opposite. They change based on what happens in the market. For example, if the liquidity of a particular currency pair goes down, then the spread may increase as the broker has to “do more” in order to verify trades. Floating spread is mostly used by traders who hope for a lower option when placing trades with exotic currency pairs.
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How Is The Forex Spread Calculated?
Let’s suppose a trader selected EUR/JPY currency pairs. For example, the JPY value is 1.1532 times the USD at the moment. The asking price is 1.1534- this is the currency price that the traders are charged. Besides, the price that the seller sets is 1.530. So the difference between the ask and bid price, the same as the Spread, equals 0.0004 in this case.
What Is a Pip?
"Pip" is an acronym for percentage in point or price interest point. A pip is the smallest whole unit price move that an exchange rate can make, based on forex market convention.
Most currency pairs are priced out to four decimal places and a single pip is in the last (fourth) decimal place. A pip is thus equivalent to 1/100 of 1% or one basis point.
For example, the smallest whole unit move the USD/CAD currency pair can make is $0.0001 or one basis point.