FOREX TRADING

Forex trading is trading currencies from different countries against each other.  Trading in Forexmarket means the exchange of currencies by buying and selling the currencies pairs. Earlier Forex trading was mostly limited to large banks and institutional traders. However, recent technological advancements have made it so that small traders can also take advantage of the many benefits of Forex trading just by using the various online trading platforms to trade.

The currencies of the world are on a floating exchange rate, and they are always traded in pairs. About 85% of all daily transactions involve trading of the major currencies. Four major currency pairs are usually used for investment purposes. They are: Euro against US dollar (EUR/USD), US dollar against Japanese yen (USD/JPY), British pound against US dollar (GBP/USD) and US dollar against Swiss franc (USD/CHF).

Forex trading is typically done through a broker or market maker. As a Forex trader you can choose a currency pair that you expect to change in value and place a trade accordingly. For example, if you had purchased 1,000 Euros in January of 2005, it would have cost you around $1,200 USD. Throughout 2005 the Euro’s value vs. the U.S. Dollar€™s value increased. At the end of the year 1,000 Euros was worth $1,300 U.S. Dollars. If you had chosen to end your trade at that point, you would have a $100 gain.

The FOREX market is active 24 hours a day and dealers at major institutions are working 24/7 in three different shifts. Clients may place take-profit and stop-loss orders with brokers for overnight execution. Price movements on the Forex trading are very smooth and without the gaps that you face almost every morning on the stock market. The daily turnover on the FOREX market is somewhere around $4 trillion, so a new investor can enter and exit positions without any problems.

The Forex market trading is a global decentralized market place that determines the relative values of different currencies. Unlike other markets, there is no centralized depository or exchange where transactions are conducted. Instead, these transactions are conducted by several market participants in several locations. It is rare that any two currencies will be identical to one another in value, and it’s also rare that any two currencies will maintain the same relative value for more than a short period of time.  In Forex, the exchange rate between two currencies constantly changes.

The Forex market is unique and the largest and oldest financial market in the world. It is also called the Forex market or FX market for short. It is the biggest and most liquid market in the world, and it is traded mostly through the 24 hour-a-day inter-bank currency market. Online Forex trading serves many advantages.

·         Its huge trading volume representing the largest asset class in the world leading to high liquidity;

·         Its geographical dispersion;

·         Its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday;

·         The variety of factors that affect exchange rates;

·         The low margins of relative profit compared with other markets of fixed income; and

·         The use of leverage to enhance profit and loss margins and with respect to account size.