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What is forex trading and how does it work?

Forex or ‘foreign exchange’ is the transaction of converting one currency into another currency. Converting the currency is used for different reasons like travelling, business, international trades, etc. In addition, many investors use the currencies and their values to earn profits by conducting forex trading. 

What is forex trading?

Forex trading is the method of trading that involves monitoring the currency prices to capitalize on the fluctuations in the currency and earn a profit. Forex trading is done on two currencies, so they are traded in pairs. A forex trader will exchange one currency for another, hoping that a currency will either go up or down in value against the other currency. 

A currency pair’s value is influenced by geopolitical, political, global, and economic factors. Along with this, the different economic factors also affect the demand and supply of forex. As a result, these factors lead to heightened volatility in the forex market. 

In forex trading, traders use a currency pair to conduct their trading. The currency pair is made up of a base currency and a quote currency. The price of a pair is the amount of quote currency it costs to purchase a single unit of the base currency. Once you have understood the market and accurately predicted a currency pair's movement, you can earn decent profits through the currency pairs.

For instance, in the currency pair USD/INR, the dollar is the base currency, and the Indian rupee is the quote currency. Therefore, if the USD/INR pair is trading at a specific value, one dollar is worth that value in rupees. 

A global network of financial institutions across four different forex trading centres in different time zones: Tokyo, Sydney, New York and London manage the forex market. As there is no specific location for the market, it is open 24 hours a day and five days a week. 

Thus, forex trading involves capitalizing on the small fluctuations that occur on the currencies involved. Traders use a currency pair to participate in the forex trading market. As a result, forex trading can be quite profitable. However, the traders need to use a smooth broker for their trading orders as the price movements in the forex markets are quite fast.  

What are the different trading strategies?
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