FOREX

Forex trading is the trade of the world’s various currencies. Other names given to this type of trading are Foreign exchange and just FX. With trading worth more than $3 trillion (USD) happening everyday, makes Forex trading the biggest market in the world. Almost all Forex trading is speculative and it only needs a small part of market activity.

The Forex market is a 24-hour market as it has trading centres all over the world, the main ones are in London, Frankfurt, New York, Sydney and Tokyo. The Forex market is not conducted by a central exchange like the stock market, it is on the “interbank” market. This market is said to be like an over the counter (OTC) type market. This type of trading is directly between two counterparts necessary to make the trade, this can happen over the phone or over electronic network.

Trading happens simultaneously by buying one currency and selling of a different one. The combination of currency in the trade is known as a cross. An example of this will be GB pound/US dollar, the common trade between currencies are called “majors” and they are EUR(€)/USD($), USD($)/JPY(¥), USD($)/CHF and GBP(£)/USD($).

The spot market is considered to be the most important as it has the largest volume. It is known as the spot market due to the trades being settled immediately (on the spot), but in the real world you get it in two banking days.

In Forex trading you can trade assets that represent more than what you have I your account. Forex trading is normally done with small margin deposits, and this is useful as it will let investors exploit the fluctuations in the exchange rates which tend to be very small. People that trade within forex work with a 1% margin, therefore if they have £10,000 in their account then they will be allowed to trade up to £1,000,000. With this level of margin enables you to make quick profits, but there is also a large risk of having losses or even being wiped out. So it is always not advisable to maximise your margin as the risk can be too great.

So why do people choose Forex??

It is very tempting investment for people to trade on Forex as it incurs no commissions, therefore no matter how many deals an investor makes, they will pay no commission to anyone. If the investor trades the “majors” then it will be even cheaper due the high level of liquidity.

Trading margins are high, therefore it allows investors to trade up to 100 times their investment. On the first $25,000 of your investment the leverage is up to 100 times, and then any additional investment it can be up to 50 times.

Liquidity of the market, so you will always be able to find buyers and sellers to trade with. Due to the liquidity of the market, and of the major currencies, helps the market stability and narrow spreads. The liquidity is from the banks that provide to investors, companies, institutions and other currency market players.

Another major advantage of the Forex market is that you can trade 24 hours a day. The trading times are from Sunday (20:00 GMT) to Friday (22:00 GMT). This will allow you to react quickly to anything that will affect the market in any way.

As this market is constantly moving, there are always trading opportunities. It could be that the currency is getting stronger or weaker in relation to another one. When you are trading currencies then they are working against each other.