The Forex or foreign exchange market is a separate branch of the financial system. This market hosts multi-billion dollar transactions every day and is, therefore, a very popular place to invest. But how does the Forex market actually work?
An ultra-dynamic sector
The word Forex is the abbreviation of Foreign exchange, which corresponds to the foreign exchange market. Concretely, this is the finance sector where so-called convertible currencies are bought and sold, respecting exchange rates that vary continuously.
Forex is more or less the second largest financial market globally, behind the interest rate market. According to the Bank for International Settlements statistics, this sector recorded between 2011 and 2013 an average daily trading volume of 5,300 billion dollars or 4,000 billion euros. In other words, Forex generates activity every day that is equivalent to 90% of Japan’s GDP in 2013.
An almost institutionalized but open market
Most transactions on the Forex market are carried out by swaps or interest rate swaps denominated in two different currencies. Spot transactions and forward exchanges, over-the-counter, are also present in this market. Also, a good part of the activity on Forex is carried out by banks and non-banking financial institutions.
Nearly 43% of exchanges take place between banks, 40% between a bank and a non-banking financial institution and 17% between a bank and a non-financial entity. Thousands of individuals also participate in the exchanges, investing through the Forex platforms of banks or fund managers.Thousands of individuals also participate in the exchanges, investing through the Forex platforms of banks or fund managers.
Forex is a 24-hour market, except on weekends. The main stock exchanges in the world, from Sydney to New York, via London and Frankfurt, indeed take turns to record transactions, mostly cross-border.
The quotation on the foreign exchange market thus always represents two currencies placed side by side; the one on the left is the base currency, and the one on the right is the counter value currency. As in other financial markets, investors play on variations in the prices of currency pairs to reap profits in Forex.
Forex is a 24-hour market, except on weekends. The main stock exchanges in the world, from Sydney to New York, via London and Frankfurt, indeed take turns to record transactions, mostly cross-border.
The quotation on the foreign exchange market thus always represents two currencies placed side by side; the one on the left is the base currency, and the one on the right is the counter value currency. As in other financial markets, investors play on variations in the prices of currency pairs to reap profits in Forex.
How to start trading currencies
Read reviews
Reading the brokerage reviews is a good starting point for all newbies willing to succeed on the market. These reading pieces represent great information regarding the trading conditions encompassing leverage, minimum deposits, spreads, trading instruments, and many more. For instance, if you want to get to know the Trader House broker, which is pretty decent, read Lexatrade review.
Choose a reliable broker
You need to pay particular attention to whom you entrust your money. The broker is the trading intermediary, but also it should be your partner, mentor and advisor. Make sure it’s regulated and offers enough trading features for proper trading. Make sure the platform interface suits you, the fees and commissions, and other essential aspects of Forex trading such as types of accounts, other trading instruments, etc.
Choose the assets
You will be amazed by the number of currency pairs offered. But don’t invest straightaway in exotic currencies. Try your hand with the majors such as USD\EUR, EUR\GBP. Once you grasp the trading process, go for the other pairs and try more risky strategies such as scalping.
