Forex

Forex is the market where businesses, investors, traders, banks and governments come to buy and sell, speculate and exchange on currencies. The Forex trading market is also known as FX market or currency market in some countries, is one of the world’s largest liquid market with a massive turnover of over 4 Trillion USD. It is easily accessible as it is open on 24 hour/7 days a week basis, with the leading world trading markets in Europe, ranging from London, New York, Tokyo, Zurich, Frankfurt, Singapore, Paris, Sydney and Tokyo. There is generally no major central place for the FX market, as trading is done always over the counter OTC unlike stock which is primarily done in the stock exchange of the jurisdiction in which operates. FX is a product listed by major banks but with different process and prices. Now, brokers take all these feeds from different banks and lists them at an approximate average. Forex trading refers to all retail traders that take positions based on speculation about the price of one currency to another. It is important to guide against risk involved in the forex market and not only based assumptions on the possible returns.

FX market is very popular because of the potential affluence it brings if it turns out to be rewarding. It takes a lot of discipline and determination. A lot of banks trade Forex through the interbank rate which allows for commercial FX transactions and large funds of speculative trading each day. Most of this trading is done on behalf of customers who are proprietary traders by saving with the banks. Also, big establishments and companies need the FX market to do international transactions and exchange currency with other countries.

 

Individuals and investors also manage large asset portfolios of their clients and they use the FX market to implement the transactions in foreign currency. If you have to travel to a different country and need to exchange your available money into a different currency, you will have to participate in the foreign currency exchange market. Also, for example, investment managers who control an international equity and portfolio management for their clients, purchase several currencies in order to pay for foreign assets.

Retail Forex traders also participate in the foreign exchange market as they have access to the market indirectly either through a bank or a broker. The retail trading market is continually growing in the large amounts of money processed through the platforms as there is now easy access to the market on the internet.

These retail Forex traders or brokers act as agents for their clients and they try to find the best deals on the markets by executing on behalf of their clients. For this, they also charge an amount called commission as a price for their services. They are also called or referred to as "Market Makers" because they make the market and act as a counterparty on transactions that involves the client at a price and are compensated through a spread which is the difference between the sell price and the buy price.

 

Advantages of Forex Market Trading:

Forex with its daily volumes surpassing over 4 Trillion USD daily, is the largest market in the world. This implies that there is a high density of liquidity which makes it easier for investors to easily switch trading positions. It also allows investors to trade at any given time as unlike the structured and regularized stock exchange, there is no opening bell or closing bell in the Forex market. You can enter and exit a trade at any time you want except holidays. There is also ease of access to fund your trading account with little or large amounts of cash. Retail brokers can also begin trading and execute to trade with the click of a mouse. There is also a freedom to trade anywhere in the market be it in equities or securities, the only requirements needed to trade is constant internet connection and a laptop device. Forex trading sometimes comes with commission free transactions and lower transaction fees than commodities and stocks.

Before beginners can start to trade in the Forex market, it is advised, they study the potential risks and rewards as asides, it is one of the easiest ways of losing your money as there is a high risk of volatility and high probability of losing your trading money. Before starting, it is critical that you are informed of this.

Forex trading is different from the stock trading done on the stock exchange and regulated by the securities and exchange commission. In Forex trading, currencies are traded in pairs and prices are listed in pairs. FX market prices always fluctuate and isn’t constant, but this makes it hard for potential investors to make profit on small and little trades. This is the major reason behind the leverage or funds borrowed by brokers, they are used to mitigate against losses and risks of losing all your trading money.

In Forex trading, the sell and buy prices are important to a currency listing. They represent the brokers/dealer’s position. The bid price is the rate at which you can give out the base currency- meaning the price at which you are ready to sell the currency. The ask price is the amount by which the dealer is willing to pay to purchase the currency.