The foreign exchange market (forex, FX, or currency market) is a worldwide, decentralised, over-the-counter market for the trading of currencies. According to a statement issued by CLS, a major settler of trades, the daily traded volume in February 2018 hit $1.855 trillion*.
FX trading involves buying one currency pair "base currency" against another currency pair "counter currency" anticipating that one currency will rise or fall against another.
Forex Trading example
Opening the position
The price of the AUD against the USD (AUD/USD) is 0.71706 bid /0.71707 ask. You would like to buy 1 standard lot (AUD100,000) at 0.71707 ask.
You have 5,000 AUD balance and the leverage is 1:100
100,000 AUD x 0.71707 = 71,707 USD Opening value
100,000 AUD x 1% = 1,000 AUD require margin
Closing the position
Three days later, the price of AUD against the USD rises up to 0.72752 bid/0.72754 ask. Since you are in profit, you would like to close your position by selling 1 standard lot (AUD100,000) at 0.72752 bid.
100,000 AUD x 0.72752 = 72,752 USD Closing value
Gross profit on trade USD 1,045.00 USD
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