What is the forex market?
Maybe you have heard the name of forex market from many friends and acquaintances these days, in this article we are going to introduce the forex market and answer the question of what is forex, and review many points about this market together.
Forex is a foreign exchange and currency investment market. The process of converting one currency into another is used for various reasons, usually for business or tourism.
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According to the three-year report of the Bank for International Settlements (the World Bank for National Central Banks), the volume of daily forex trading reached $6.6 trillion in April 2019. Our offer to you: Global Market Intelligence Course (Forex)
Tips about the forex market that you should know!
- The foreign exchange market (also known as FOREX or FX) is a global market for the exchange of national currencies.
- Because of the global reach of business and finance, forex markets are the largest and most liquid asset markets in the world.
- Currencies are traded against each other as currency pairs. For example, EUR/USD is a currency pair for exchanging the euro against the US dollar.
Forex market or currency market?
A currency market is a place where currencies are traded. Currencies are important because they enable the purchase of goods and services locally and across borders. In order to do domestic trade and foreign trade, international currencies must be exchanged.
If you live in the United States and want to buy cheese from France, either you or the company you buy the cheese from must pay the French for the cheese in euros (EUR). This means that the US importer must exchange the equivalent value of US dollars into Euros. The same goes for travel. A French tourist in Egypt cannot pay in euros to see the pyramids because this is not the accepted local currency. As such, the tourist must exchange Euros for local currency, in this case Egyptian pounds, at the current rate.
One of the unique aspects of the international forex market is that there is no central market for foreign currency. Instead, currency trading is done electronically over-the-counter (OTC), meaning that all trades take place over computer networks between traders around the world, rather than at a centralized exchange.
The forex market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney.
This means that when the trading day ends in the United States, the forex market begins again in Tokyo and Hong Kong. In this way, the forex market can be active at any time of the day and the prices are constantly changing.
A brief history of Forex market
In the most basic sense, the forex market has been around for centuries. People have always exchanged goods and currencies to buy goods or services. However, the forex market as we understand it today is a relatively modern invention.
After the Bretton Woods Agreement in 1971, more currencies were allowed to float freely against each other. The value of individual currencies varies based on demand and circulation and is monitored by currency trading services.
Commercial and investment banks conduct most of their trading in the forex markets on behalf of their clients, but there are also speculative opportunities to exchange currencies against other currencies for professional and individual investors.
Read more: digital currency training
An overview of Forex market
Forex market is where currencies are traded. Forex is the only continuous and non-stop trading market in the world.
In the past, the forex market was dominated by institutional firms and large banks that acted on behalf of clients. But in recent years it has become more retail, with traders and investors of all sizes participating.
One of the interesting aspects of the global forex market is that there is no physical building that serves as a trading floor. Rather, it is a set of connections made through business terminals and computer networks. Participants in this market are institutions, investment banks, commercial banks and retail investors. (What is Money Flow Index (MFI)?)
Trading in the forex market
Forex trading is similar to stock trading. Here are some steps to get started in forex trading.
- 1 . Learn about the forex market: Although not complicated, trading in the forex market requires specialized knowledge. For example, the leverage ratio of forex trading is higher compared to stock trading, and the drivers of currency price movement are different from stock markets. For more information and training, you can see Famorin’s forex market training package here .
- Setting up a brokerage account: To start forex trading, you need a forex trading account with a brokerage. Forex brokers do not charge commission. Instead, they make money through the spread (also known as a pip) between the bid and ask prices.
For beginner traders, it is a good idea to set up a forex trading account with low capital requirements. Such accounts have variable trading limits, allowing brokers to limit their trades to as low as 1,000 currency units. A standard account lot is equal to 100,000 currency units. A micro forex account will help you become more comfortable with forex trading and determine your trading style.
- Develop a trading strategy: While it is not always possible to predict and time the market movement, having a trading strategy helps you set broad guidelines and a roadmap for trading. It takes into account the amount of capital you are willing to put on the trade, as well as the amount of risk you can tolerate without burning your position. Remember, forex trading is primarily a highly leveraged environment. But it rewards those who are willing to take risks.
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