over the course of the next few minutes we’re going to go through some of the basics of the foreign exchange market how it works how people trade it and what makes currency pairs move so in this latest with trading – and so what I thought we’d do is take maybe something of a step back now I appreciate plenty of people are quite familiar with foreign exchange trading but for some people it might be a new thing so we’ll do a few minutes just explaining how this market works when you’re trading what you’re actually trading and what makes currency pairs move now first of all foreign exchange market it’s the biggest market in the world Bar None it trades trillions of dollars a day around the clock so it appeals to both traders who are trading small size and larger size because it’s relatively easy to get your trades filled.
Related: How to Trade Forex Currency Pairs?
The cost of doing business is much lower when compared to other markets with currency markets no currency moves in isolation so we have the idea of of currency pairs one currency quoted against another so to make sense of this let’s take a quick look on the platform so we’re on the trading two-on-two platform let’s click the search tool up here top left and see what’s available to trade let’s click on currencies now so here’s the list of various currencies Australian dollar Canadian dollar Swiss franc Czech koruna and so it goes on so there are potentially hundreds of permutations we could trade for example if we go down to here the PLN polish zloty if you wanted to you could take a view on the Polish zloty against the Japanese yen polish zloty against the Mexican pesos.
There are all sorts of combinations you can do it what most people tend to do in the beginning at least is stick to the major markets that the major currency pairs because there’s normally plenty going on in those markets and with trading – and – if you’re trading 25,000 units or less you can trade these with zero spread so let me just highlight these by typing in zero at the top so there we go that the most popular market eurodollar then we have the other Majors dollar Japanese yen Pound US dollar and the dollar against the Swiss franc so when we’re looking at currencies and currency pairs it’s all about relative value is one currency stronger or weaker than another currency and to get an idea of this.
Let’s take a look at how one currency pair has moved over recent months so all the currency pair is showing is the relative value of one currency versus another so if we’re looking here in this example pound US dollar we can see at the beginning of 2020 so January 2020 one pound would buy you around about one dollar and 22 cents at the beginning of September the pound had risen in value and one pound would buy you one dollar and almost thirty-two cents so when we’re looking at Forex pairs foreign exchange trading we’re looking at the value of one currency versus another now because we have currency pairs I think it can be a bit confusing at the beginning for some people when they click and they buy dollar-yen or what am I buying am I saying that dollars gonna go up my saying the yen’s gonna go up it’s understandable.
Why this is confusing to some but it’s really easy I think to understand so again let’s take a quick look on a platform to understand when we’re trading what direction are we actually trading in when it comes to the directional trading it’s really easy like I said it can be a bit confusing for people in the beginning but the way to remember if you buy pound US dollar it’s the first quoted currency in the currency pair that you’re buying and selling buying or selling so if I buy pound US dollar I’m speculating that the pound is going to go up means this chart is going to go up and correspondingly the US dollar is going to fall so the pounds value is going to increase against the US dollar.
So for example if I’d bought down here bought pound US dollar at the beginning of the year and we’re still holding the position I’d be sitting on a reasonable profit if I thought the pound had gone up too far and I think why the markets gonna fall how do I profit from this well how do I try and profit from this the way to do it I would click on sell I would sell pound against the US dollar so I’m speculating the value of the pound is gonna drop on this it’s going to turn lower okay so that’s that that’s the rule of thumb when you’re buying or selling it’s the first quoted currency that you’re buying or selling against the other one so if we sold the dollar against the Japanese yen we’re speculating the dollar yen is gonna fall so the dollars gonna fall and the yen is correspondingly gonna rise when it comes to trading hours foreign exchange market is a true 24-hour market.
So it starts off Sunday night UK time when the Asian markets open for business and it trades all the way around the clock till Friday evening when New York finishes off for the weekend then on Sunday the whole thing starts again but you don’t need to be intimidated or worried by there’s 24-hour market let’s let’s take a look at some of the moves that we see and how we might want to trade it here’s a snapshot of a few days pairen against the dollar where each of these candlesticks represents 10 minutes worth of trading so going back to the 5th of September and ending up at the end of that particular week on the 8th of September so we can see you can see from the scale just down here that this is a 24 market for example this section here we’ve got from 11 o’clock UK time Asian trading kicks in the market moves higher then we have sort of 7:00 to 8:00 in the morning UK time when the focus shifts to Europe and the market continues to rise in this example and then we have US time so from about five six o’clock in the evening UK time the focus is very much on the US. we had something of a quiet finish but but don’t be I think worried about this being a 24-hour market you know thanks to stop losses and take profit orders you can set up your trade so if a certain level gets hit you come out for a small loss or you come out for the profit you’re expecting just because it’s a 24-hour market you don’t need to watch these markets around the clock sitting there in your pajamas with matchsticks holding your eyes open you know you can use orders to manage the risk for you when you’re trading foreign exchange that like so many other products these days you’re trading using leverage so even though you might have let’s say $100,000 position in one currency you don’t actually tie up the whole amount because traditionally currencies don’t move that much during the day you’re trading using leverage so you may only have to put up half a percent or one percent value of the position so you have a situation where a small sum of money can control a much bigger financial position of course that gives you the potential for greater profits but hand-in-hand with that goes the risk of bigger losses which is why it’s important.
I think to manage the risk using stop losses and we’ve done plenty of about how you might want to use stop losses the last thing we might want to look at is what moves foreign exchange pairs the short answer and maybe not too helpful is potentially everything can have an impact on the currency markets you know from things like interest rates for example if the interest rates in one country higher than the interest rates in another country that can make that currency appealing but hand in hand with that sometimes higher interest rates mean maybe a weaker economy so that can make money flow the other way things like unemployment numbers have an impact as well and as we’ve seen you know in the past from 12 to 18 months political events can have an impact the great example of that is the pound you know we’ve seen the pound very volatile since the referendum vote in June 2016 so all of these things can come together an effect of foreign exchange markets so that’s it that’s it that’s a brief introduction to some of the basic mechanics of foreign exchange now every week we do different on trading strategies but if you have any questions about this one leave us a message in the comments down below if you liked the click the thumbs up and as usual to not miss out on any of the various that we send out during the week if you click the subscribe button there they get automatically notified when the next goes up but we’ll bring things to an end I hope you found it useful and I hope you have a good trading week.