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WHAT IS FOREX -The foreign exchange market is a global decentralized or over-the-counter market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. The foreign exchange market, which is usually known as "forex" or "FX," is the largest financial market in the world. Compared to the measly $74 billion a day volume of the NewYork Stock Exchange, the foreign exchange market looks absolutely ginormous with its $4TRILLION a day trade volume. Forex rocks our socks!
so guys in this blog I will talk all about the forex trading
- what is forex
- How the currencies are trading
- The market player in the forex market
- and lots more advantages of the forex market.
WHAT IS FOREX -The foreign exchange market is a global decentralized or over-the-counter market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. The foreign exchange market, which is usually known as "forex" or "FX," is the largest financial market in the world. Compared to the measly $74 billion a day volume of the NewYork Stock Exchange, the foreign exchange market looks absolutely ginormous with its $4TRILLION a day trade volume. Forex rocks our socks!
HOW THE CURRENCIES ARE TRADING-Currencies Are Traded in PairsForex trading is the simultaneous buying of one currency and selling another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the euro and the U.S.dollar (EUR/USD) or the British pound and the Japanese yen (GBP/JPY). When you trade in the forex market, you buy or sell in currency pairs.
THE MARKET PLAYER OF FOREX MARKET-Now that you know the overall structure of the forex market, let's delve in a little deeper to find out who exactly these people in the ladder are. It is essential for you that you understand the nature of the spot forex market and who are the main players.
1. The Super Banks-Since the forex spot market is decentralized, it is the largest banks in the world that determine the exchange rates. Based on the supply and demand for currencies, they are generally the ones that make the bid/ask spread that we all love. These large banks, collectively known as the interbank market, take on a ridonkulous amount of forex transactions each day for both their customers and themselves. A couple of these super banks include UBS, Barclays Capital, Deutsche Bank, and Citigroup. You could say that the interbank market is THE foreign exchange market.
2. Large Commercial Companies-Companies take part in the foreign exchange market to do business. The volume they trade is much smaller than those in the interbank market, this type of market player typically deals with commercial banks for their transactions.
Mergers and acquisitions (M&A) between large companies can also create currency exchange
rate fluctuations. In international cross-border M&As, a lot of currency conversations happens
that could move prices around.
3. Governments and Central Banks-Governments and central banks, such as the European Central Bank, the Bank of England, and the Federal Reserve, are regularly involved in the forex market too. Just like companies, national governments participate in the forex market for their operations, international trade payments, and handling their foreign exchange reserves.
Meanwhile, central banks affect the forex market when they adjust interest rates to control inflation. By doing this, they can affect currency valuation. There are also instances when central banks intervene, either directly or verbally, in the forex market when they want to realign exchange rates. Sometimes, central banks think that their currency is priced too high or too low, so they start massive sell/buy operations to alter exchange rates.
ADVANTAGE OF THE FOREX MARKET-There is many benefits and advantages of trading forex. Here are just a few reasons why so many people are choosing this market:
1.No commissions-No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail brokers are compensated for their services through something called the "bid-ask spread
2.No middlemen-Spot currency trading eliminates the middlemen and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
3. Low transaction costs-The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market conditions. At larger dealers, the spread could be as low as 0.07%. Of course, this depends on your leverage and all will be explained later.
4. A 24-hour market-There is no waiting for the opening bell. From the Monday morning opening in Australia to the afternoon close in New York, the forex market never sleeps. This is awesome for those who want to trade on a part-time basis because you can choose when you want to trade:
morning, noon, night, during breakfast, or in your sleep.
5.No one can corner the market-The foreign exchange market is so huge and has so many participants that no single entity(not even a central bank or the mighty Chuck Norris himself) can control the market price for an extended period
6. Leverage-In forex trading, a small deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum.
For example, a forex broker may offer 50-to-1 leverage, which means that a 50 dollar margin deposit would enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $500dollars, one could trade at $25,000 and so on. While this is all gravy, let's remember that leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.
7. High Liquidity-Because the forex market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will as there will usually be someone in the market willing to take the other side of your trade.
You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position once your desired profit level (a limit order) has been reached, and/or close a trade if a trade is going against you (a stop-loss order).
8. Instant Execution of Market Orders-Your trades is instantly executed under normal market conditions. Under these conditions, usually, the price shown when you execute your market order is the price you get. You're able to execute directly off real-time streaming prices.
9. Short-Selling without an Uptick-Unlike the equity market, there is no restriction on short selling in the currency market. Trading opportunities exist in the currency market regardless of whether a trader is long or short, or whichever way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. So you always have equal access to trade in a rising or falling market.
So, friends, these are the advantage f the forex trading, forex is one of the best product for trading
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