Alpari forex strives to provide a flawless Forex trading experience, whether you are a seasoned investor or a newcomer to the Forex market. Whether you're just getting started in the markets or looking for a refreshing dip, our trading guide is designed to break the terminology and answer traders' most frequently asked questions.
What is Forex?
Forex is an abbreviation for the word "foreign exchange " (sometimes abbreviated as "FX ") and is a global decentralized trading market for world currencies. Traders, investors, banks and exchanges buy, sell and speculate in these currencies and, in turn, these activities determine the exchange rate.
What are currency pairs?
Forex is speculation on currency fluctuations between two countries. These two currencies are called "currency pairs " and are composed of the base currency and the quote currency. The most traded currency pair is the Euro versus the US Dollar, which is commonly referred to as EUR /USD.
What's the spread?
The spread is the number you get when you subtract the buy (buy) price from the sell (sell) price. This difference is actually the cost of the trade and is extremely important to forex traders. You will often hear the term "tight spread" - it means that trading costs are low.
How does forex work?
For forex trading, to buy and sell currencies - for the purpose of making a profit. Forex trading will always include two currencies at the same time: the base currency and the quote currency. The price difference is where you get your profit or loss.
Is it risky to trade Forex?
Any kind of trading has its own risks, and this is important to always remember, but it can also be profitable, which is why so many people do it. Again, we cannot encourage you to start trading on a demo account if you are new to Forex trading. When you are ready to open a live account, you should always fully consider the risks involved.
What is position?
A position is a trade that is currently being executed. You can open long and short positions in trading:
Long position: this is when a trader has bought a currency in anticipation of its growth. After selling the currency, the long position is considered closed.
Short position: this is when a trader has sold a currency in anticipation of its decline. After the redemption of the currency, the short position is considered closed.
Which currency pairs are the most popular in Forex trading?
While in theory you can trade almost any currency pair, there are certain pairs that are consistently the best traded. They are called Major pairs (as indicated in the name) - they make up 80% of the total trading volume in the Forex market.
These major pairs are associated with a stable economy and therefore offer low volatility and high liquidity.