How does Forex trading work on XM's platforms?

What is Forex?

Forex trading, currency trading, or also abbreviated as FX trading, are terms that describe the foreign exchange market as we know it today and refer to global and decentralized markets in which people, companies, and Financial institutions exchange currencies at variable rates.

The current variable rate system was adopted after World War II and has been in force ever since.

Before the current system of forex trading rates, there were a monetary management system called the Bretton Woods agreements, where the exchange prices of currencies with each other were linked and correlated with the gold reserves that the two emitting countries of the real currencies owned.

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What is the Foreign exchange market?

The currency exchange market, as we know it today, is the largest and most liquid market in the world due to several factors, including the ease of carrying out transactions over the Internet, the evolution of tourism, the ease of international communications, and modern transportation systems, which have drastically reduced distances on our planet.

Making our world a smaller and more global place, automatically means that people, goods, and services can travel faster and easier.

At the same time, the need arises to exchange some currencies for others so that all this happens.

These factors have determined the growth of the foreign exchange market, which will continue to develop, becoming more dynamic, liquid, and receptive.

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Online Forex trading on XM

Among the major players in the forex trading market, one of the fastest-growing segments is retail (individual) foreign exchange traders who engage in online trading for speculative reasons primarily to generate a profit from currency fluctuations (foreign exchange), or avoid unwanted monetary risks.

This segment participates in the forex trading market through a broker (such as XM) or a bank.

In this case, the bank or broker will issue a trading account to the minority client, the client will fund their account in a base currency (usually the local currency of the region in which the client is established), and the client will have the opportunity to buy and sell currencies, both online and by phone, in order to make a profit.

Participating in the forex trading market through a broker such as XM means that the client receives access to real-time quotes from the forex market with purchase and sale prices of a certain number of instruments through an online trading platform.

The client has the freedom to decide at what price to buy or sell, being able to execute a transaction whenever he wishes.

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What is Forex trading?

Forex trading, also known as currency trading or FX trading, refers to buying a certain currency and in exchange selling another.

Currency trading always involves exchanging one currency for another.

The ultimate goal can vary and, for example, can be one of the following:

1. Exchange currency A (eg USD) for currency B (eg EUR) to travel.
2. Exchange currency A (eg USD) for currency B (eg EUR) for trading.
3. Exchanging currency A (for example, USD) for currency B (for example, EUR) to speculate, with the aim of making a profit.

With all of the above, among other considerations, the forex trading market is currently the most liquid and volatile market in the world, with more than $ 5 trillion of trading volume per day.

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How does forex trading work on XM?

Forex trading is essentially exchanging one currency for another.

Therefore, an XM client sells one currency against another at the current market price.

To be able to operate, it is necessary to open an account and have a currency A and exchange said currency for a currency B, in an operation that can be short or long term, varying the objective accordingly.

Since forex trading is done with currency pairs (for example, the price of the relative value of one currency unit against another currency unit), where the first currency is called the base currency and the second currency is called the quote currency or counter currency.

For example, the price EUR / USD 1.2345 is the price of the euro expressed in US dollars, which means that 1 euro is equal to 1.2345 dollars.

Currency trading can be done 24 hours a day, from 22:00 GMT on Sunday, until 22:00 GMT on Friday, with currencies traded in the main financial centers of London, New York, Tokyo, Zurich, Frankfurt, Paris, Sydney, Singapore, and Hong Kong.

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Why Forex market prices change every second?

There are endless factors that contribute to and influence forex trading prices on a daily basis (for example, exchange rates), but it could be said that there are 6 main factors that contribute the most and are the drivers of price fluctuation in forex trading:

1. Differentials in inflation
2. Differentials in interest rates
3. Current account deficits
4. Public debt
5. Terms of trade
6. Political and economic stability

To better understand the above 6 factors, you will need to keep in mind that currencies trade against each other.

Therefore, when one currency falls, another rises since the price denomination of any currency is always set against another currency.

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What is a trading platform of Forex?

Forex trading software is an online trading platform provided to each XM client, which allows them to view, analyze and trade currencies or other asset classes.

In short, each XM client has access to a trading platform (i.e. software) that is directly connected to the prices of global markets and allows them to transact without the intervention of a third party.

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Who are the participants of the Forex markets?

Participants in the trading markets can be in any of the following categories:

1. Foreign travelers or consumers who exchange money to travel abroad or buy goods from abroad.
2. Companies that buy raw materials or goods from abroad and need to change their local currency to the currency of the country in which the seller is located.
3. Investors or speculators who exchange currencies, requiring any of them a foreign currency, to operate with stocks or another class of assets from abroad or to operate with currencies and obtain benefits with the market changes.
4. Banking institutions that exchange money to serve their clients or to lend money to foreign clients.
5. Governments or central banks that buy or sell currency and attempt to adjust financial imbalances or adjust to economic conditions.
   What is important in forex trading?

As a retail trader of the foreign exchange market, the most important factors affecting your trading are the quality of order execution, speed, and spreads. Each affects the other.

A spread is a difference between the bid price and the ask price of a currency pair (buy or sell price); that is, it is the price at which your broker or your bank is willing to sell or buy your requested order.

However, spreads are only important with correct execution.

In the forex trading market, when we talk about execution we mean the speed at which the currency trader can buy or sell what he sees on his screen or the bid / ask price quoted over the phone.

A good price is meaningless if your bank or broker cannot execute your order fast enough to get that bid / ask price.

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Major, Minor and Exotic FX Currency Pairs

In forex trading, some currency pairs are nicknamed Major (major pairs).

This category includes the most traded currency pairs and always includes USD on one side.

Major pairs include: EUR / USD, USD / JPY, GBP / USD, USD / CHF, USD / CAD, AUD / USD, NZD / USD

Minor currency pairs or crosses are all currency pairs that do not include USD.

Exotic pairs include the least traded currency pairs, that is, a major currency with a currency from a smaller or emerging economy.

Typically, these pairs have less volatility, less liquidity, and do not exhibit the dynamic behavior of the major and minor currency pairs.

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