Forex Brokers
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Forex (FX) is a portmanteau of foreign currency and exchange. In short, it is the conversion of one country's currency into another.
Learn More: Forex Trading: A Beginner’s Guide -
Foreign exchange, or forex, is the conversion of one country's currency into another. In a free economy, a country's currency is valued according to the laws of supply and demand. In other words, a currency's value can be pegged to another country's currency, such as the U.S. dollar, or even to a basket of currencies. A country's currency value may also be set by the country's government.
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Beginner investors should spend time learning about the forex market and research which forex broker to sign up with. It's important to find a forex broker that is regulated in the United States or the United Kingdom (U.S. and U.K. dealers have more oversight). There are some forex brokers registered in countries with more lax regulatory oversight, and this could be problematic for retail investors who don't have a solid understanding of the forex market. It is also a good idea to find out what kind of account protections are available in case of a market crisis, or if a dealer becomes insolvent.
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Forex can be a highly profitable investment, but as with all high-reward investments, there is a much higher risk involved.
Forex investing has a very low entry point, sometimes as little as $50, and forex traders can use leverage to their advantage by basing position size on the account balance. If you have $10,000 in your forex account, a $100,000 position-or a standard lot-would use 10:1 leverage. Even so, a smaller position will limit your risk.
Although there's a lot of money to potentially be made in the forex market, it would be wise to educate yourself extensively about the market, start small, limit your leverage, and place stop loss orders to limit your downside risk. A stop-loss order effectively activates a market order once a price threshold is triggered. A market order is an order a trader enters to sell or buy a security at the best available price in the current financial market.
Learn More: 10 Ways to Avoid Losing Money in Forex -
The foreign exchange market is extremely liquid and dwarfs, by a huge amount, the daily trading volume of the stock and bond markets. According to the latest triennial survey conducted by the Bank for International Settlements (BIS), trading in foreign exchange markets averaged $6.6 trillion per day in 2019. By contrast, the total notional value of U.S. equity markets on Dec. 31, 2021, was approximately $393 billion. The largest forex trading centers are London, New York, Singapore, Hong Kong, and Tokyo.
Learn More: Foreign Exchange (Forex) Guide
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Forex
Forex is a portmanteau of foreign exchange. It is the conversion of one country's currency into another. A currency's value can be pegged to another country's currency, such as the U.S. dollar, or even to a basket of currencies. A country's currency value may also be set by the country's government.
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Currency
Currency is a medium of exchange for goods and services. It's money, in the form of paper or coins, usually issued by a government and generally accepted at its face value as a method of payment.
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Currency Basket
A currency basket is a set of several currencies with different weightings. It is often used to set the market value of another currency, a practice commonly known as a currency peg. Forex traders may also enter basket orders to trade several currency pairs simultaneously.
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Currency Peg
A currency peg is a policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or a basket of currencies. Pegging a currency stabilizes the exchange rate between countries. Doing so provides long-term predictability of exchange rates for business planning. However, a currency peg can be challenging to maintain and distort markets if it is too far removed from the natural market price.
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Pegging
Pegging refers to the practice of attaching or tying a currency's exchange rate to another country's currency. Pegging often involves preset ratios, which is why it's called a fixed rate. Pegs are often put in place to provide stability to a nation's currency by linking it to an already stable currency.
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Basket Trade
A basket trade is a type of order used by investment firms and big institutional traders to buy or sell a group of securities simultaneously.
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Currency Pair
A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.
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Base Currency
In the forex market, currency unit prices are quoted as currency pairs. The base
currency, also called the transaction currency, is the first currency appearing in a currency pair quotation, followed by the second part of the quotation, called the quote currency or the counter currency. For accounting purposes, a firm may use the base currency as the domestic currency or accounting currency to represent all profits and losses. -
Quote Currency
In foreign exchange (forex), the quote currency, commonly known as the counter currency, is the second currency in both a direct and indirect currency pair and is used to determine the value of the base currency.
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