Currency trading explained:
In a universe with a single currency, there would be no foreign exchange (FOREX), no foreign exchange rates, and no foreign exchange. But our world of mainly national currencies, the foreign exchange market plays the indispensable role of providing the essential machinery for making payments across borders, transferring funds and purchasing power from one currency to another, and determining that singularly important price, the exchange rate. Over the past twenty-five years the way the market has performed those tasks has changed enormously.
Since the early 1970s, with increasing internationalization of financial transactions, the foreign exchange market has been profoundly transformed, not only in size but in coverage and mode of operations. A basic change in the international monetary system from the fixed exchange rate “par value” requirements of Bretton Woods that existed until 1971 to the flexible legal structure of today, in which nations can choose to float their exchange rates or to follow other exchange rate regimes and practices of their choice.
The foreign exchange market, commonly known as the FOREX market, is by far the largest and most liquid market in the world. The foreign exchange market, is the backbone of all international capital transactions. It is the medium for how the world may view a nation’s economic situation. The New York Institute of Finance estimates the daily average to be more than $4 trillion.
Because of its size and reach, it is virtually impossible, even by government central banks to manipulate the FOREX market for any length of time.
Unlike the equity markets, no effective insider interference is possible.
The Interbank market is unique:
- Transactions occur directly with other Interbank participants
- Orders are processed immediately
- Transaction participants are non-discretionary
- Two-sided markets are offered to purchase and sell any currency at any time
- Both short and long positions can easily be established
The FOREX market is open 24 hours a day, nearly 6 days a week that does not depend on certain business hours of foreign exchanges; trade takes place among banks located in different corners of the globe. Exchange rates are so flexible that significant changes happen quite frequently, which enables to make several transactions every day.
What Is Forex?
Forex (Foreign Exchange market) is an inter-bank market that took shape in 1971 when global trade shifted from fixed exchange rates to floating ones. This is a set of transactions among FX market agents involving exchange of specified sums of money in a currency unit of any given nation for currency of another nation at an agreed rate as of any specified date. During exchange, the exchange rate of one currency to another currency is determined simply: by supply and demand – exchange to which both parties agree.
The scope of transactions in the global currency market is constantly growing, which is due to development of international trade and abolition of currency restrictions in many nations.
With the highest rates of information technology development in the last two decades, the market itself changed beyond recognition. FX transactions that used to be the privilege of the biggest monopolist banks not so long ago are now publicly accessible thanks to e-commerce systems.
The key advantage of a FX market is that one can succeed there just by the strength of one’s intelligence .
Another essential feature of the FX market , no matter how strange it might seem,is its stability. Everybody knows that sudden falls are very typical of the financial market. However, unlike the stock market, the FX market never falls. If shares devalue it means a collapse. But if the dollar slumps, that only means that another currency gets stronger. For instance, the yen strengthened by a quarter against the dollar late in 1998. On some days dollar fell by dozens percentage points. However, the market did not collapse anywhere; trading continued in the usual manner. It is here that the market and the related business stability lie - currency is an absolutely liquid commodity and will be always traded in.
The Benefits Of Forex Trading
The FOREX Market is one of the most attractive and unique markets worldwide. The following summarizes some of the many reasons why professional investors have flocked actively towards this market.
You can work from anywhere in the world:
Due to the fact that the market is available to every individual or corporate 24 hours a day, one can trade from anywhere in the world. With an Internet connection, and a laptop, computer or even WAP enabled cell phone you can trade easily with FOREX at your finger tips, with complete convenience of your home or office. That’s why this market is called a convenient market.
The markets are open 24 hours a day:Around the clock trading gives traders the opportunity to trade within any time zone around the globe. The currency market is a 24-hours market; therefore as a trader, this allows you to react to favorable/unfavorable events by trading immediately. It also gives traders the added flexibility of determining their trading day.
Largest & Most Lucrative market in the world:
If you add all the volume on all the stock exchanges in the world, it would still not get close to the volume on the FOREX market. Volume ensures that a trader can easily get rid of a position – if you want to buy, there will always be sellers and if you want to sell, there will always be buyers. Therefore, it is very easy to get rid of cash because everyone wants it, due to the vast number of investors in this market, and approximately 1.9Trillion US Dollars of trading volume a day.
Orders are executed and confirmed online or manually via a recorded phone call. Customers can know the rate immediately at which the order is executed. Confirmed orders will always receive a single price execution.
Limited Capital required to start and operate this business:Unlike most other businesses, currency trading does not need extra money to grow your investment or substitute your business with cash to expand your new plans. You simply grow your investment or new plans by locking in profits from your trading account.
You can enjoy the benefits of leverage on contracts from ten to Five Hundred times of your margin deposit. That is, with 1% of the absolute value of ANG Markets contracts, you can enter the largest marketplace in the world. As long as you are able to maintain your margin requirements on the full contract value, you can remain indefinitely in the market.
Being the largest market in the world with over $1.9 Trillion bought and sold daily, huge volume of transactions are readily executed and cleared. Unlike futures or the stock market, there is never a lack of buyers or sellers. Therefore, it gives the investor the prerogative to open or close a position at will.
Ease of Mind:
There is no need to sit behind your computer for hours to keep track of your positions. You can simply put a stop loss or take profit order or even a buy or sell limit and let the system do the job for you.
Informative and Educative:
The true value of education on trading is: if you ever lost money while trading in the markets, you know how to make it back. This means that knowledge and experience gives you the edge, income, confidence, clear trading strategies and much more.
Lower Transaction Costs:
Executing trades electronically reduces manual effort, thereby lowering the costs of doing business. On-line brokers are then able to pass along the savings to their client base.
Real-Time Profit and Loss Analysis:
The fast-paced which is the nature of the FOREX market compels traders to execute multiple trades each day. It is vital for each client to have real-time information about their current position in order to make well-informed trading decisions.
Full access to market information:
Access to timely and relevant information is critical. Professional traders pay thousands of dollars each month for access to major information providers. However the very nature of the internet affords users free access to reliable market information from a variety of sources, including real-time price quotes, international news, government-issued economic indicators and reports, as well as subjective information such as expert commentary and analysis, trader chat forums etc.
Equal access to market information:
Professional traders and analysts in the equity market have a definitive competitive advantage by virtue of the fact that they have first access to important corporate information, such as earning estimates and press releases, before it is released to the general public. In contrast, in the FOREX market, pertinent information is equally accessible, ensuring that all market participants can take advantage of market-moving news as soon as it becomes available.
Profit potential in both rising and falling markets:
In every open FOREX position, an investor is long in one currency and short the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling FX Market. Meaning traders could either sell or buy to enter the market.