The foreign exchange market, or Forex, is the world's largest financial market, with the average daily turnover exceeding $3,200,000,000,000. Forex currency trading is buying one currency while selling another currency. The exchange rate of the currencies are floating, and the traded products are in the form of currency pairs. For example,the Euro/US dollar (EURUSD) or US dollar / Yen (USDJPY).
Unlike the stock and futures markets, the Forex currency trading market has no centralized market place. The Forex market is like an 'OTC' or 'interbank' market. where trades are completed by two parties via telephone and computer.
The foreign exchange market is also known as the 'inter-bank' market, this is because it is dominated by central banks, commercial banks, and investment banks. However, the proportion of other market participants is rising. Other participants include multinational companies, global fund managers, registered dealers, international money brokers, futures and options traders and other individual investors.
The foreign exchange market is open from Sunday 5.00 pm. EST to Friday5.00 p.m. EST. The trading day begins each day in Sydney and then follows the sun around the globe, covering Tokyo, London, and then New York. Unlike other financial markets, foreign exchange traders are able to respond to market fluctuations 24 hours day.
The most popular currency pairs in the foreign exchange market include national currencies which have stable governments and stable inflation rates. The following currencies make up 85% of the daily foreign exchange trading volume: USD, YEN, EUR, GBP, CHF, CAD and AUD.
No. The minimum amount needed to open an account is $250, with a maximum allowed leverage of 1:400. This means investors can use a margin of $25 to effectively trade with $10,000. This enables customers to take advantage of currency rate fluctuations. Please note, leverage is a double-edged sword, and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange products with any level of leverage may not be suitable for all investors.
Margin is the amount required to open a new Forex position. Essentially, it is an amount set aside from your free equity, so you can undertake your new trade.
In trading terms, a 'Bullish' market refers to when a trader believes that the market prices will rise i.e. a trader could buy (long) a currency and hope to sell it again at a higher price, thus taking advantage of rising prices. A 'bearish' market is simply the opposite, referring to a market where prices are perceived to be falling. In this case, a trader can expect to benefit from falling prices by selling (shorting) a currency and then buying it back at a later date.
The price of foreign exchange is determined by a variety of economic and political factors, the most important factors being: interest rates, inflation and political stability. Governments are also known to periodically participate in the foreign exchange market, taking actions to affect the monetary value of their domestic currency. This is known as the central bank intervention. These factors, among others, can cause significant fluctuations in currency prices. Nevertheless, the huge volume of foreign exchange trading which take place in the market each day, insures that no one person can control the market trend at any one time.
Forex traders often use technical factors and economic fundamentals to make trading decisions. Technical analysis includes charts, trend lines, support and resistance, and a variety of modes and data analysis to determine trading opportunities. Fundamental analysis focuses on the analysis of various economic indicators, news reports, Government announcements, and even rumours, in orderto make predictions regarding futureprice movements.