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Forex trading (FX) refers to trading in one currency against another to make a profit.
The most traded pairs of currencies in the world are called the Majors. They constitute the largest share of the foreign exchange market.
Consist of two popular currencies, but do not include the US dollar. The most common crosses include Euro, Yen and British.
Consist of one major currency and one currency, representing the developing (Brazil,Mexico, India etc.) or small (Sweden, Norway etc.) economy.
The exchange rate for a currency pair is the amount of the specified currency that you can buy for 1 unit of the base currency.
For example, the most common and most traded currency pair is EURUSD. When looking at the exchange rate for EURUSD, you want to find out how many US dollars (the specified currency) you can buy for 1 euro (the base currency). If the exchange rate of the EURUSD currency pair is 1.3278, it means that for every 1 € you can buy $ 1,3278.
If the exchange rate rises, it means that the base currency is strengthened compared to the specified currency. If the exchange rate goes down, it means that the specified currency is strengthened compared to the base currency.
Various factors affect exchange rates in the FX market, such as political and economic stability, as well as economic policy in different countries, but since currency transactions are immediate, speculation mainly affects price changes in the market.
If traders speculate that a currency will strengthen or weaken due to a specified reason or event, they will trade and change the price of the market, as supply and demand for the currency will change within the market. The more people who believe that a certain trend will happen, the greater the effect it will have on market prices.
When you trade currency, you always trade a currency pair, i.e. you sell or buy one currency against another. For example, if you speculate that the Australian Dollar (AUD) will strengthen against the US dollar, you should buy the currency pair AUDUSD. If you instead speculate that the US dollar will be the stronger one, you sell the currency pair. You can always take a position in the direction you assume the market is moving.
This increases your trading opportunities.