It was in early 1970s when the Forex market was first formed after the Bretton Woods Accord in an attempt to restore the global economic state. At this Accord, major currencies were to be pegged to the dollar which in turn was pegged to the price of gold at $35 an ounce. Hence, major worldwide pegged currencies could only fluctuate one percent.
Although many European nations Cours EUR USD formed other agreements to move away from accord depending on the U.S. dollar, their attempts were unsuccessful. But the free-floating Forex trading system came on the scene where there are no pegs on currencies. This allows the currencies to fluctuate freely. Forex traders take advantage of the currency fluctuations for a gain by studying the change in currency pricing and the current economic events.
Basic Forex Trade Mechanics
As your main objective in Forex trading is to make profits, then you must be prepared to steer your trading activities towards a profitable direction by understanding the market basics. The Forex market operates on a 24 hour basis for the weekdays. It is a global entity where the global market hours may overlap which ensures that there is always a market opened for trading. The Forex market usually closes at 21:00GMT Friday and reopens at 21:00GMT Sunday.
A Forex trade comprises a pair of currencies known as the base and quote currency respectively. Forex traders can buy or sell a currency pair using the quote or second currency value. There are many currency pairs which you can trade at a Forex trading: EUR/USD, USD/JPY, EUR/GBP, USD/GBP and so on. Some pairs are known as major Forex pairs which are more actively traded while others are called minor Forex pairs as they are less popular in Forex trading.
Leverage is an important and essential tool to Forex trading. It is a loan by a broker to a Forex trader to intensify trading results. You just need to multiply the leverage figure by the trade amount such as a 50:1 leverage refers to a matching of one dollar by the broker for every 50 dollars you trade.
There are risks involved in Forex trading but there are also tools to help you reduce the risks. You can exercise a stop-loss order or a take-profit order to close your position immediately when the currency price reaches a certain value. This stop-loss order guards you from further losses while the take-profit order allows you to make a specific profit.There is also an OCO order where one order cancels off the other when your position has been closed. An If-done order allows you to place another order after your position has been closed.