What is Forex Trading?

What is Forex Trading ?

Introduction to Foreign Exchange

What is the market changes?

The Foreign Exchange (FX or Forex ) is one of the largest financial market in the world and also one of the most liquid. According to the Triennial Central Bank assessment has great authority, prepared by the Bank for International Settlements, Basel, daily gross income for April 2007 exceeded US $ 3.2 trillion, and everything points in the direction that the market continues to expand. The spot market accounts for about one third of the total FX market activity.

The foreign exchange (FX) is easy to understand from the moment one gives as much of a currency is indeed a good whose value can change against other currencies or other assets, such as gold and crude .

What is Forex Trading ?

In a foreign exchange transaction, sold one currency for another. The exchange rate represents the relative value between the two currencies. Normally, currencies are identified by a code Swift three digits. For example, EUR = Euro, USD = the US dollar, the Swiss franc CHF =, etc. You can find the complete list of codes. An exchange rate EUR / USD 1.5000 means that 1 is worth $ 1.5 US

Sometimes, EUR / USD currency pair is called. The exchange rate can be reversed. Thus the EUR / USD rate equals 1,500 kinds USD / EUR 0.6666. In other words, $ 1 US worth 0.6666. In the market reality, most currencies are quoted against the dollar, although there are important exceptions as mentioned EUR / USD, GBP / USD (Pound Sterling) and AUD / USD (Australian dollar). Not as confusing as it sounds.

Systems exchange rates

There are basically two types of exchange rate systems:

1. The system of flexible exchange rates

2. The system of fixed exchange rates.

1. In a system of flexible exchange rates, currency float freely and its value is determined by market forces.

2. In a system of fixed exchange rates, the currency can not fluctuate freely, since its value is fixed in relation to a particular currency such as USD, with a specific type, or in relation to a set of currencies. In a fixed system, the central bank uses its foreign exchange reserves to prevent movement of the exchange rate set

What influences the market price changes

Many factors that influence the value of a floating rate currency market changes from the flows of international trade, economic or political situation given the level of interest rates until supply and demand short term. Unlike many other assets, FX is a pure market and rates move freely in both directions.

OTC

The foreign exchange (FX) is predominantly an OTC market. Most transactions do not take place in a single regulated market, and this is one reason why, despite its huge size, the foreign exchange (FX) still find it confusing to many investors. However, technological advances have improved the transparency of this market and has opened to a larger number of operators. The FX market is open almost 24 hours a day, 7 days a week and transactions are increasingly electronically.

Main actors in the Forex market

The banks are the main players in the FX market. The interbank trading represents the largest volume of Forex volumes. In this market, major banks negotiate directly with each other using interbank brokers or electronic trading systems such as Reuters. The bigger the bank, the greater their credit relationships with other banks which, for the customer, it means greater potential for better prices.

Central banks, which control the supply of foreign currency in their countries, specifically negotiated to achieve certain economic goals. Mainly to negotiate volumes of foreign exchange reserves, act in ways that affect or maintain the financial stability of its currency.

International corporations are important players in the foreign exchange market, since considerable foreign exchange change, as when buying goods or services from a foreign supplier.

Travellers who need to change currency to be abroad are also active players in the market.

Investors and speculators who take advantage of fluctuations in exchange rates have become aware of the opportunities offered by the Forex market. Much of his negotiating includes fit or hedging, a type of investment strategy designed to eliminate the risk.

Forex spot with respect to future currency

Increasingly runners prefer the FX spot future for several reasons. First, the cash Forres provides better liquidity and lower overall costs that future negotiations. In addition, banks and brokers in spot Forex give quotes 24 hours a day, without fees was incurred, as for currency futures associations such as the NFA (National Futures Association), usually charged to customers in the form of high commissions.

The mechanism of trading spot currencies is similar to trading in currency futures. However, an important difference is the way currency pairs are traded. The currency futures are always quoted as the currency against the dollar USD. For cash coins some coins also quoted as USD currency against the dollar, while others are quoted as the USD dollar against the currency. For example, the EUR / USD is traded in the same way that the future of the euro. This means that if the euro is rising against the dollar USD, the EUR / USD will rise as euro futures rise.

However, in the currency exchange spot trading the Japanese yen as the USD dollar against the yen, while the opposite for future yen is performed. Therefore, if the yen rises against the dollar USD, USD / JPY low spot, while the yen futures rise.

The rule in foreign exchange spot is that the first currency is always the one that is quoted in terms of direction. For example, EUR in EUR / USD and USD in USD / JPY are listed currencies.

Advantages of Forex trading

24-hour Market

The Forex market never sleeps. Is active 24 hours a day due to the time lag between the main markets in Europe, Asia, and the United States. In rooms transaction, brokers working in three shifts to ensure availability. Customers have the possibility to make orders to take profits (take-profit) and stop loss (stop loss) with runners to run overnight. The Forex market is open from Sunday to Friday, giving riders the opportunity to react immediately to market news and determine their own trading hours.