#1- What is Forex Market?
The FOREX market is the largest and most popular financial market in the world. Every day, trillions of dollars are traded in different currencies around the world, where a large number of individual investors, companies and financial institutions speculate and operate.
It is an OTC (Over the counter) market, decentralized, in which participants determine with whom they want to trade depending on the investment conditions, the attractiveness of the prices and the reputation of the counterparties.
As FOREX is the basis for international capital transactions, its liquidity and volume are much higher than any other financial market. It is estimated that the average volume traded by the worldâs largest stock exchange, the New York Stock Exchange (NYSE), in a full month is equal to the volume traded daily in the Forex currency market. Moreover, this volume is estimated to increase by 25% annually.
80% of transactions take place between the US dollar (USD), the Euro (EUR), the Yen (JPY), the British Pound (GBP), the Swiss Franc (CHF) and the Australian (AUD) and Canadian (CAD) dollars.
Forex trading involves simultaneously buying one currency (e.g. Euros) and selling another (e.g. US Dollars). These simultaneous buying and selling transactions are carried out through online brokers. Trades are specified in pairs; for example, the Euro and the Dollar (EUR/USD) or the British Pound and the Yen (GBP/JPY).
These types of transactions can be a bit confusing at first, since you are not physically purchasing anything. Basically, each currency is tied to the economy of its respective country and its value is a direct reflection of people's perception of that economy. For example, if there is a perception that the economy in Japan is going to weaken, the Yen will probably depreciate against other currencies. That is, people will sell Yen and buy currencies from countries where the economy is or will be better compared to Japan.
Unlike other financial markets such as the stock market, the foreign exchange market does not have a fixed location like the world's largest exchanges. These types of markets are known as OTC (Over The Counter). Transactions are carried out independently around the world, mainly through the Internet, and prices can vary from one place to another.
Due to its decentralized nature, the foreign exchange market operates 24 hours a day, Monday through Friday.
Until a few years ago, this market was only available to large financial institutions and banks. Today, and largely due to the advancement of the Internet, it is possible for individuals to access this international currency market from their computer, mobile phone or tablet with minimal initial investment requirements.
Forex has become one of the most popular instruments used by individual investors or people looking for a career change or a way to earn additional income.
Why exchange currencies?
There are several benefits and advantages to trading in Forex. Below we detail some of the reasons why so many people choose this market:
NO FIXED LOT SIZE.
In Forex, unlike other markets, the size of a trade or lot can be determined by you. This allows people to participate with very small account sizes, starting from âŹ100 / $100 or less.
LOW TRANSACTION COSTS.
The spread or cost per transaction is usually less than 0.1 percent under normal market conditions. This can vary, and also depends on the leverage used.
MARKET OPEN 24 HOURS.
There is no need to wait for the market to open to start trading, as you can trade from Sunday afternoon to Friday afternoon. Only one and a half days on the weekend is the market closed. This is incredibly advantageous as it allows each person to set their own trading hours.
CANNOT BE MANIPULATED.
This market is so large that no single participant or entity (Central Bank) can control the market price for an extended period of time.
LEVERAGE.
In Forex, a small deposit of money can be used to make much larger trades, due to the leverage offered, some of which are over 200 to 1, meaning that you can make a trade for example of $10,000 with only $50 available in your account. However, leverage is a double-edged sword. Without proper risk management, a high degree of leverage can lead to the total loss of your capital.
HIGH LIQUIDITY.
Given the size of this market, it is also extremely liquid. This means that under normal conditions, with a single click one can instantly buy or sell. It is the optimal market in this regard, without many of the problems that exist in other markets such as the stock market.
FREE DEMO ACCOUNTS, NEWS, CHARTS AND ANALYSIS
Most online brokers offer free demo accounts so that people can practice and learn how to invest without putting their money at risk. They also offer real-time news and analysis, as well as graphical tools to analyze price trends.
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