Foreign Exchange (Forex) Market
Foreign Exchange (Forex) market is a decentralized type of market that is available globally and where all the world’s currencies are traded against each other. Investors get a profit or lose money, depending on changes in the price of currencies. The Forex market is known to many as the market rates.
The Forex market offers enormous opportunities for traders to capitalize on the fluctuations in the currency markets. Its size is considerable, but the function of the Foreign Exchange market, unlike any other, is quite simple.
What is Forex?
Forex Market is the world’s largest market, with an average trading turnover of more than $ 5 trillion per day.
Novice Forex traders often wonder about the location of this market. The answer is simple. Forex is not a centralized market where cash transactions are carried out. The auction is taking place through electronic transactions. This means that all trading transactions are made by traders around the world using a computer.
Forex operates 24 hours a day and 5 days a week so that traders had the opportunity to smooth placement transactions. There are trade-in international currencies virtually in all time zones.
The Forex market is the most liquid. A high level of liquidity means that the price change is transient.
Trading in Forex
Trading activity that occurs on the Forex market involves the simultaneous buying of one currency and selling another. Assign it possible that the price of one currency relative to another is determined by comparison.
Here’s how it works:
Any currency pair is treated as a unit consisting of a “base” (the first in the pair) and “counter or quote” (second in the pair) currency that can be bought or sold. It shows what part of the counter currency needed to buy one unit of the base currency.
For example, in the currency pair EUR/USD, EUR is the base currency, and the USD is the counter currency. If a trader expects the price of the Euro will start to grow with the cost of the US dollar, then it can acquire the currency pair EUR/USD. Buying a currency pair (long position), the base currency (EUR), and the counter currency (USD) is for sale. Thus, the investor buys the currency pair EUR/USD at a low cost to subsequently carry out its sale at a higher price and make a profit as a result.
Do not forget that there is always a risk. If a trader is buying the Euro against the US dollar, expecting the euro price will increase, but the US dollar strengthened instead, then the trader will incur losses. Thus, in addition to the benefits that can be derived from trading in the Forex market, traders should always consider the risk associated with it.
As you know, the Forex market is not so difficult to understand, and existing risks are not dangerous to enter. You can become one of the market participants for a few minutes and start making money fairly quickly.
The Foreign Exchange market is very active throughout the day with the ever-changing price quotation. The Forex market is the only one that works 24 hours a day, five days a week. Sounds impressive, right?
You can carry out trades with currencies on the international market in different cities like Zurich, Hong Kong, New York, Tokyo, Frankfurt, London, Sydney, and Paris. This means that almost all Forex time zones are active. At the end of one of the world’s working hours, other banks have already opened the door to continue trading.
Time flexibility is beneficial for traders who have a busy schedule. They do not need to worry about the hours of the opening and closing of the Forex market, and they organize their trading activities at any time.
Who are the Participants of the Forex Market?
The Foreign Exchange market is made up of different members, also known as the Forex market players. They carry out trades in the market for various reasons. This means that participation of trade in the Forex is not just for speculation. Each member plays a role in ensuring the integrity and stability.
The leading players in the Forex market are:
- Governments and Central Banks
- Commercial Banks and Companies
- Hedge Funds
- Retail Forex Traders