What is forex trading?

Put in simple terms, Forex is simply the act of buying and selling one currency for another. The forex market is typically the largest financial market in the world of trading with daily trade volumes hitting a high of trillion dollars. That’s just how huge and a big deal the forex trading at the global market platform is. The market is global, decentralized and exchange rates shift within seconds hence the market is prone to great instabilities. Majority of the forex trading happens merely for speculative reasons; to make profits. The two currencies being traded form a pair e.g. CAD/USD; Canadian dollar versus U.S dollar where the first 2-digits are the country’s initials while the last digit is the currency.

How does it work?

The forex market typically runs for 24hrs a day 5 days a week exclusive of weekends, unlike the NYSE (the largest stock market in the world) and other bond markets which operate until the close of business hours each day.

The rate of one currency to another is presented in the format:

·         CAD/USD = 0.78791

What this means is for 1 Canadian dollar, you require 0.78791 U. S dollars. The left hand side currency is our base value while the right-hand side currency is our quote value.

When should I buy?

The buy window is also referred to as the long position in forex trading. As a trader you get to open the long position only when you anticipate that the base value for your trading pair is going to shoot up. See how to measure volatility.

When should I sell?

A sell also referred to as the short position. On the contrary, a sell position is open when you foresee a decrease in value of the base currency for your trading pair.

As a trader, having the knowledge and understanding of volatility indicators will help you know when to enter or exit a long or short position, by identifying breakout opportunities in the market. Here are some strategies to apply in your trading.