Nov 30

Benefits of Forex Trading:

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The following are the benefits of Forex trading:

An open market:

In the past currency trading trends, the trading was only among the large scale sectors, multi national companies and major banks. It was a closed market. But now-a-days, it is also open to the small scale investors and individuals. Trading can be done with even minimum funds. One can gain knowledge to trade through various sources like Internet.

Trading round the clock:

The Forex Market is open 24 hours a day, 5 days a week. So one can trade as per ones wish – either day trading, scalping or long term trading, according to the skills and trading strategies of the trader.

Has a high liquidity:

The efficiency of a market depends on the key factor called liquidity. A trader would want to an active market with a lot of buyers and sellers around to participate. Currency trade has the highest liquidity and the daily dollar trading is over 3 trillion.

No transaction cost:

In the process of currency transaction, typically there is no commission or transaction fee incurred outside of the quoted spread.

A good profit potential:

A trader with an open forex position goes long one currency and goes short the other. If the trader determines that a currency is about to fall in value, then he/she can sell that currency short and go long with another currency regardless of market direction.

Leverage:

Leverage is referred to as the margin based trading. Leverage makes it possible for the traders to submit trades, valued considerably higher than the deposits in their trading accounts. Leverage for trading currencies are higher.

Though there are risks involved in currency trading, there are ample benefits too. With proper Forex education one can minimize the risk and reap the benefits of currency trading.

Nov 30

The Size of the Forex Market:

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Forex Market is the most liquid and most efficient market. The Forex Market has turned into the largest financial market in the world. Above $3 trillion US are traded each and every day.

No other financial markets – even when their daily trading volume is combined with other financial markets, could come closer to the daily trading volume of Forex Market.

The trading currencies:

The most commonly traded currency is the US dollar. Then comes the Euro, Japanese Yen, Great British Pounds, Swiss Franc, Australian dollar and Canadian dollar. Though there are other currencies used in trading, they are not as common as the above 7 currencies, colloquially called the big 7.

To say, no individual or an organization can influence the exchange rates, due to the magnitude of the traded volume, each day.

The beneficiaries of Forex:

From individuals to organizations, all would need forex at different times. Some of the beneficiaries to mention are consumers of goods and services, travelers from one country to another, business firms that have cross border transactions, foreign investors and speculators, commercial and investment banks and so on.

Currency trading trends:

The currency trading in the past was a “closed market”. Only major banks, large organizations and multi national companies made currency trading. The transactions made were in a large scale.

During this age, it was not possible for the small scale sectors and individual investors to part take in the currency trading as equally and as competitive as the large scale investors.

As new technologies evolved, the past trend has changed and paved way for small investors also to participate directly in the forex market.

Nov 30

Exchange rates and The Forex Market:

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Exchange rates of the Forex Market are the number of units of one currency that is needed to buy one unit of the other currency. In other words, exchange rates would be referred to the value of one currency in terms to the other currency.

Exchange rates are influenced by the real world events. The exchange rates change constantly. The exchange rates are quoted in currency pairs, in the Forex Market.

Why should we exchange currencies?

There is a need to exchange currencies when an individual or an organization requires goods and/or services from a foreign country. Because of these needs the Forex market emerged. According to the import and export of a country, the value of the currency of that country is varies.

Buying and Selling in a Forex Market:

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Always currencies are traded in pairs, the base and the quote. When a trader buys a currency it means he/she buys the base currency for the quote or he/she goes long for the base and goes short for the quote.

What is Placing an order?

In the Forex Market, placing an order would mean that, the trader makes a request to either buy or sell the base currency against the quote currency, in the current exchange rates. This can also be called “Opening a trade”. A trader need not have to own the currency he/she sells.

A trader takes the position of a buyer or seller based on the exchange rates at that time.

A trader stops a trade, when a he/she eventually decides to take a profit or to stop a loss. Therefore, he/she ends the trading which is called “Closing a trade”.

Nov 30

The evolution of Forex:

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The concept of FOREX evolved long back. But the Forex market of  today was formed in the early 1970s. After the second World War, “The Bretton Woods Accord” was established to restore the economic state of the World. A standard was fixed by the entity. It was decided by The Bretton Woods Accord that all the major currencies should be pegged to the dollar of the United States of America. The US dollar was in turn pegged to gold. The price pegged to gold was $35 per ounce.

During this period, the currencies that pegged to the US dollar were able to fluctuate by one percent only.

The independent move by the European Nations:

During 1970s, The European Nations did not want to depend upon the US currency. So they sought to move away from the dependency. They formed The Smithsonian Agreement and the European Joint Float. Though each of their agreements were similar to The Bretton Woods Accord, the values of currency had a great fluctuation range.

The free-floating systems:

But both systems failed. This resulted in the emerging of the free-floating systems. In this system, currencies were able to freely fluctuate as there were no longer pegs on currencies.

The profit trade:

Since the currencies were able to fluctuate freely, the traders started utilizing them on the Forex market. Traders analyzed the current events and change of prices. They started making profits through the fluctuation of currencies, by buying or selling of one currency against the other.

Nov 30

What is forex?

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Forex is nothing but the abbreviation of “Foreign Exchange”. The buying or selling of one currency against the other is what Foreign Exchange is.

Days and hours of trading:

Since Forex Market is a global entity, the working hours of the market overlaps with one another. This ensures that the market is always open. Trading can be done  24 hours a day and 5 days a week. The Forex market is closed on every Friday at 21:00 GMT. On Sundays at 21:00 GMT the market is reopen for the traders to trade.

Base and Quote:

Each currency of a particular country is denoted in a three letter format. For example the currency of the United States is denoted as USD, the currency of Europe is denoted as EUR and so on.

Currencies are always traded in pairs. First currency is called the base and the second currency is called the quote of a currency pair. To state with an example, in the following pair of currencies, USD/EUR the USD is the base currency and the EUR is the quote currency.

Trading Activities:

A trader would either buy a currency or sell it against the other. Therefore, all trades are a result of buying of one currency and selling of the other currency, simultaneously.

In trading “buy” would be referred as “long”  and “sell” would be referred as “short”.

When a trader buys a currency pair, it implies that he/she is buying (longing) the base currency and selling (shorting) the quote currency.