Sunday, February 25, 2018

Introduction on Forex

November 22, 2009 by  
Filed under General Forex Information

What is Forex?

The Foreign Exchange market, also known as “FOREX”, “currency exchange”, “Forex”, “FX” or “Spot FX” is the biggest financial market in the world, with a volume of more than four trillion dollars daily.

Forex trading is the simultaneous buying of one currency and then selling of another currency. It always comes in pairs. For example the euro dollars and the US dollar (EUR/USD) or the British pound and the Swiss Francs (GBP/CHF).

FX Market Place

At the center of the FX marketplace, there are a lot of banks trading against one another. This is known as the interbank market. These banks trade among themselves through a network of dealing stations directly. They uses a electronic broker called the Electronic Broking System (EBS) to conduct their trading with. They place their buy and sell orders using this EBS and where these orders’ prices are matched. If they are not matched, they will be in queue till the prices are matched or these orders are withdrawn.

Forex: The Biggest Players in the FX Market

Banks

The biggest players in this huge volume market are the Banks. These banks employ and train traders to trade on their behalf in their proprietary accounts for profits. Banks also can help their clients’ transactions too, be it for commercial or trading intentions.

Government and Central Banks

Government and Central Banks are involved in this market. Their objective is to ensure the country’s reserves are intact or growing. Therefore, they will trade to gain profits or retain the value of the reserves.

Another reason why Government and Central Banks are heavily involved in the currency exchange is because they need to control and moderate the country’s currency strength and weakness. They will intervene when the currency movement is too excessive.

Unit Trust, Hedge Funds and Investment Funds

Some of these funds are speculating in currency value. Quantum Fund is one of such funds. They will buy or sell a currency if they think if it will change in value over time. It is because of the Forex large volume turn over that able too accommodate their large trading size. Not all equity or futures market are able to fit their huge funds.

Being a Forex Trader: Benefits you can take Advantage on

There are many reasons for you to consider trading currencies.

  • There is No Commissions charges
    • Brokers are compensated by the bid-ask spread. This makes your profit margin higher.
  • There is No Minimum Lot Size
    • In stock market, you need to buy at least 1 lot of shares, which you need to pay the share price and multiply it 1000 times. That’s not all. You need to pay the broker’s fees for the transaction. In Forex, you can tailor your lot size based on your budget.
  • Very low Transaction Costs
    • The retail transaction cost, which is also known as the bid/ask spread, is usually less than 0.1 percent under normal market conditions.

  • 24 hour market

    • 24 hour market means you can trade almost anytime. It is something that stock market can offer. This is great because we spent most of our time working, and when we are finish our work, chances are stock market are already closed. Just trade in other country’s currency exchange market if your country’s Forex market is closed. Trade in your free time. Trade whenever you like.

  • Very High Leverage

    • A small margin deposit can control a much bigger total contract value. Leverage gives the trader the ability to make nice profits, and also keep risk capital to a minimum.

    • For example, Forex brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on.

    • But leverage can bite you back. If you do not exercise proper risk management, this high degree of leverage can lead to large losses as well as gains.

    • However, on the safe side, the worst case that can happened to you is that you can only lose all the money in your account. There is no loan. There is no interest rate. So you will no incur debt.

  • Extremely Liquidity

    • It is extremely liquidity and you shouldn’t have problems buying and selling your currencies.

    • You can set your online trading platform to automatically close your position at your desired profit level (a limit order), and close a trade if the trade is going against you (a stop loss order).

  • Free Practice and Demo Accounts

    • Experience is the extremely important. So is your confidence. Using these practice accounts to try out what you have learn, you can apply what you learn and experiment them. Once you have gain confidence, knowledge and experience. Cash in and start making profits.

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