What is the FOREX or FOREX Market? PART I
The Foreign Exchange Market (also referred to as the Forex market) is the largest financial market in the world. Transactions of more than $ 1.5 trillion change hands every day.
That’s greater than all US equity and financial markets combined!
Unlike other financial markets that operate in centralized locations (eg stock exchanges). The Forex market around the world has no central location. This is a global electronic network of banks, financial institutions and individual traders. All of them are involved in buying and selling national currencies. Another key feature of the Forex market is operating 24 hours a day. In accordance with the opening and closing of financial centers in countries around the world, starting every day in Sydney, then Tokyo, London and New York. At any time, in any location, there are buyers and sellers, making the Forex market the most liquid market in the world.
Traditional and Modern Trading
Traditionally, access to the Forex market is only available to banks and other large financial institutions. However, with technological advances over the years, the Forex market is now available to everyone, from banks to money managers to individual traders who trade retail accounts. The time to get involved in this exciting global market has never been better than now. Open an account and become an active player in the biggest market on the planet.
The Forex market is very different from trading currencies in the futures market, and is much easier, than trading stocks or commodities.
Whether you realize it or not, you have played a role in the Forex market. The simple fact that you have money in your pocket makes you an investor in a currency, especially in US Dollars. By holding US Dollars, you choose not to hold the currency of another country. Your purchases of stocks, bonds, or other investments, along with the money deposited in your bank account, are investments that depend heavily on the integrity of the value of their currencies denominated in the US Dollar. Because of changes in US Dollar values and fluctuations in exchange rates produced, your investment can change in value, which affects your overall financial status. With this in mind, it should come as no surprise that many investors have taken advantage of fluctuations in exchange rates, using the volatility of the foreign exchange market as a way to increase their capital.
suppose you have $ 1000 and buy euros when the exchange rate is 1.50 euros against the dollar. You will then have 1500 Euros. If the value of the Euro against the US dollar increases, you will sell (exchange) your Euro with dollars and have more dollars than you start.
You might see the following:
- EUR / USD means the last trade of 1.5000
- One Euro is worth $ 1.50 US dollars.
The first currency (in this example, EURO) is referred to as the base currency and the second currency (/ USD) as a counter currency or quote.
FOREX plays an important role in the world economy and there will always be an extraordinary need for currency exchange. International trade increases with increasing technology and communication. As long as there is international trade, there will be a FOREX market. The Forex market must exist so that a country like Germany can sell products in the United States and can receive Euros in exchange for US Dollars.
Risk of currency trading
Limited currency trading is a form of investment that is very risky and is only suitable for individuals and institutions that are able to deal with potential losses. An account with a broker allows you to trade foreign currencies with a high degree of leverage (up to around 400 times the equity of your account). Funds in accounts that are traded with maximum leverage can be completely lost if the position held by the account even changes by one percent. Given the possibility of losing all one’s investment, speculation in the foreign exchange market should only be done with risk capital funds which, if lost, will not significantly affect the financial well-being of investors.