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What is “Forex” foreign exchange?
Introduction to currency trading the forex market
We will cover together in this article a simple and non-boring explanation of foreign exchange trading . You can of course find such information in many other places on the Internet, but usually this information is presented in a very dry form. Therefore, we will try to simplify the information in this article and other articles on our website as possible, so that you can learn more information about foreign exchange trading or the forex market.
The foreign exchange market (Forex, or FX, or currency market) is a global, decentralized, and secondary financial market for currency trading. It is the largest financial market in the world with financial income of more than $ 5.3 trillion per day worldwide *. Forex trading income comfortably exceeds three times the equity market and futures contracts combined.
In the past, retail investors had no access to the foreign exchange market except through banks that trade in huge amounts of currencies for commercial and investment purposes. Trading volumes increased rapidly over time, especially after exchange rates were allowed to float in 1971. At present, exporters, importers, international investment portfolio managers, and multinational corporations, speculators, day traders, and hedge funds use the forex market to pay for goods and services, and to transact In financial assets or to reduce the risk of currency movements by hedging against their exposure in other markets.
There is no central market for the currency exchange; Where trades take place outside the booth. The forex market remains open 24 hours a day, 5 days a week, and currencies are traded all over the world via major financial centers in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney.
There is no or very little “inside information” in the Forex market at best. The main reason for fluctuations in exchange rates usually comes from actual cash flows as well as expectations related to global macroeconomic conditions. Important news is published openly, so everyone in the world receives the same news at the same time, at least in theory.
You Care: Are you planning to succeed as a money market trader?
Participants in the currency market or the Forex market
What is “Forex” foreign exchange?
Trading Currency Foreign Forex is a currency speculation on the price of another currency. For example, if you believe that the euro will rise against the US dollar, then you can buy the euro currency pair against the US dollar at a low price, hoping to sell it at a higher price to make a profit. If you bought the euro against the US dollar, and the US dollar appreciated, you would have made a loss. Therefore, it is very important that you are aware of the risks involved in the foreign exchange process.
Why is the Forex market the most popular?
To become an investor in the field of trading in the forex or foreign exchange market, this provides you with a very amazing lifestyle compared to any other profession in the world. It is not easy to get there, but if you have enough determination and discipline you will surely reach the end, and here are the most important things you need to reach your goals in the forex market:
Ability – to accept losses without any emotion.
Confidence – to believe in yourself and your trading strategy, and to be free from fear.
Dedication – to become the best forex investor.
Discipline – to stick to emotional calm in a world full of constant temptation (the market).
Flexibility – to successfully trade in changing forex conditions .
Focus- on maintaining your trading plan and never getting off track.
Logic – To view the market from an objective and direct point of view.
Regulation – on formulating and reinforcing positive trading habits.
Patience – to wait for higher trading strategies according to your plan.
Realism – not to aspire to get rich quickly, understand the reality of the market, and trade.
Savvy – to benefit from currency trading and to be aware of what is happening at all times. Restraint – to not over-trade and to over-use of leverage for your trading account.
Read also: Myths and Realities of Forex and the Stock Market
Who trades in the forex market, and why?
Banks – the interbank market allows for both the majority of commercial trading transactions and the trading of large amounts of speculation every day. Some large banks trade billions of dollars a day, and sometimes this trading is on behalf of clients.
Corporations – Companies need to use the foreign exchange market to pay for goods and services from foreign countries, and also to sell goods and services in foreign countries. The corporate activity resulting from the exchange of currencies in order to deal in other countries is an important part of the daily activity of the forex market.
Governments / Antrzah- banks play a central bank in a different country , an important role in the exchange markets , currency and foreign. A central bank can cause an increase or decrease in the value of a currency by trying to control the money supply, inflation and interest rates. Foreign exchange reserves can also be used to try to stabilize the market.
Hedge Funds – Hedge funds control more than billions of dollars of equity speculation every day in the currency markets.
Individuals – If you travel to a country and exchange your money for a different currency at an airport or a bank, then you are already participating in the foreign exchange market.
Investors- Investment companies that manage large portfolios for their clients use the foreign exchange market to facilitate transactions in foreign securities. Forex
retail investors – they represent the next people to trade in foreign currencies in the forex market just like you. The number of these investors has increased day by day, especially with easy access to foreign exchange trading platforms and easy access to them through the Internet. These investors can access the market indirectly, either through brokers or brokers, or through a bank.
Traders for commercial purposes:
Big companies trade in the forex market with the aim of controlling the revenues and expenses they pay in different currencies by hedging, as one or several deals are opened in order to try to reduce losses in other deals.
Traders for speculative purposes:
Investors trade currencies for the purpose of making a profit. Most forex trading is done for speculative purposes by analyzing the market and political news (fundamental analysis) and / or studying the historical movements of the financial instrument on the chart (technical analysis). Unlike other asset markets, a profit can be made in forex trading when the value of one currency decreases because this situation is offset by an increase in the value of another currency.
Potential benefits of the forex market
- Investing in Forex can offer some of the best profit / risk opportunities of any financial market
- The forex market hours are one of the most flexible hours of any financial market
- Huge trading volumes lead to high liquidity (which means the market is able to accept huge trades)
- No party can monopolize or control the Forex market
- The costs of starting to trade Forex, whether in terms of money or time, are among the lowest in all financial markets
- Traders can profit from the limited moves in exchange rates through the use of leverage
- Traders can generate continuous income from open positions via rollover commissions
- Free “demo” accounts, news, charts, and analysis
- Trade “mini” and “micro” contracts via the MetaTrader 4 platform
Potential risks of forex trading
- Debt trading puts your capital on the line. You can lose all you have, or lose a large portion of your trading capital if the market makes a major shift that is not in favor of your current opportunity / s.
- Your losses may exceed the size of your deposits
- Past performance does not guarantee future performance
- Tax benefits (if any) are subject to change and depend on your personal circumstances
What currencies are traded?
There are many currencies and combinations of currency pairs that are traded in the market. Here you will find a list of the major currency pairs:
|USD||United State||Dollar||Buck, green coin, reserve currency|
|EUR||Eurozone members||euro||Weber, the single currency|
|JPY||Japan||The yen||The yen|
|GBP||Great Britain||Sterling pound||Cable|
The chart below shows forex trading activities. The dollar is the most traded currency, as it represents about 86% of all transactions. The euro comes second with a share of 37%, while the yen ranks third, with a share of 16.5%.
Finally, we must note that despite the positives in the Forex market and the various and diverse currencies, there are many risks that come along with the profit potential. Because you may find that there are a lot of investors coming to trade believing that the forex market has nothing but profits without looking at the side of risks, which may cost you losing your money.
With Markets , you will gain direct access to the “spot” forex market – a marketplace that deals in spot prices for financial instruments.
Sources: Trading Secrets , pepperstone
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