What is Forex?

Forex market and its participants
Forex market was established over 30 years ago, as a system of international trade and an exchange of foreign currencies. The foreign currency purchase and exchange on the basis of market rates allow the market participants to make a profit from the exchange transactions. Internet and other means of communication have made available Forex to anyone who wants to make some money on the market investments, not just for the big players as the banks and financial companies. Also, the major players in this field are the currency markets, dealing centers and ordinary people.

Location
Forex market exists and operates in the virtual space. In other words, it is a global network of the currency exchange participants, such as the banks, national currency markets, financial corporations, and the private investors that are combined in the single market by means of communication. Trading is round the clock in this market, and currency fluctuations depend on the supply and demand for them.

Five major currencies
These are 5 major and most popular currencies in the Forex market, the European Union (EUR), USA (USD), the Great Britain (GBR), Switzerland (CHF), and Japan (JPY). More than 70% of the trade transaction volume is done in these 5 currencies.

Exchange rate and a currency pair
The exchange rate is the value of one country’s currency in terms of another currency. A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market. Quotation can be given in numerical or graphical forms. Forex trading is performed in the currency pairs by the selling (buying) of the base currency that is quoted.

Percentage in point or a pip
The percentage in point or pip is a unit of change in an exchange rate of a currency pair. In Forex, the major currencies are priced to four decimal places. For these currencies a pip is one unit of the fourth decimal point, or 1/100th of one percent. For example, the exchange rate fluctuation of the pair GBP / USD from 1.6100 to 1.6101 would be 1 pip. How do we calculate the value of a percentage point? To do this, we need to multiply the size of traded lot by the value of one pip. It is important to know that every specific currency pair will have its own pip value.

Forex earning strategy
To make the money on Forex market, it is not necessarily to invest large financial funds. Therefore, if you have $1000 on your Forex account, you may have a buying transaction for $10,000 without risking your deposit. For example, forecasting the fall of the Japanese yen against the U.S. dollar in the currency pair USD / JPY, we buy $10,000 at the price of 93 yen for one dollar. During a certain period of time the exchange rate of the currency pair rose at 200 points (the yen fell and the dollar rose), and it reached 95 yen for 1 dollar.

After a position is closed and the dollars are sold at higher rate, we can calculate the profit from our transaction. For this we determine the value of the difference between the closing and the opening prices, and then we multiply it by the size of the lot and divide it by the closing price. In this case, we receive the following profit: (95-93)x10000/95 = $210,5 that is 21% in relation to the deposit. It is important to remember: if the closing price exceeds the opening price, we get the profit and if the opposite we have a loss.

Why does Forex market attract the investors?
Forex market attracts a lot of private investors, because they do not have to invest large sums of money, in order to have the buying transactions for large amounts. It is enough to deposit only 1% from the amount of the proposed transaction, in order to have the buying transaction. For example, if you want to get the buying transaction for $10,000, it would be sufficient to have only $100 as the deposit on your account.

Moreover, Forex market attracts the investors by the large trading volumes, low cost of transactions, fast turnover rate of finance, and the transaction fairness.