By Alberto Cannata

On June 27, 2013

The Forex is an international market where banks, corporations, public and private investors can buy and sell their respective currencies. The rules are different from those of the stock market. The latter has a fixed timetable for opening and closing, while the currency market is open 24 hours a day. In the Forex market, transactions begin on Monday at 00:00 Greenwich Mean Time, and end on Friday at 10:00 p.m. Greenwich Mean Time. This is possible because there are always open markets around the world, and it is not necessary that the traders are physically present on the site where exchanges take place. In fact, the currencies can be exchanged electronically. The main currency markets are New Zealand, Sydney, Tokyo, China, Frankfurt, London and New York.

The Forex is the largest market in the world in volume of transactions. In the past, trade in currencies was reserved exclusively for the banks. Recently, the market has been opened to small investors thanks to computers and the Internet.

There is a large electronic network that allows central banks around the world to share their quotes. It is called the Interbank. The most frequently traded currencies are the U.S. dollar, the Japanese yen, the euro, the British pound, the Swiss franc, the Canadian dollar and the Australian dollar.

When you make transactions in the Forex market, you buy one currency and, at the same time, you sell another. Currencies are always traded in pairs. For example, pound sterling and U.S. dollar or U.S. dollar and Canadian dollar. The main rule is this: you make a transaction when you expect that the currency you are buying increases its price compared to that you are selling. If the value of the purchased currency effectively increases, you close the position and take the profit.

Currency pairs are made up of a base currency, which is the first on the quotation, and a counter currency.

The Forex has a very important role in the world economy. Thanks to the development of technology and international trade, there is a growing need to exchange currency. Moreover, the huge liquidity in the Forex market allows traders to speculate on currencies. Obviously, for this purpose, it is essential to use valid investment strategies.

In summary, the Forex is an international market where the money of each country is sold and bought freely. The price of one currency against another is determined exclusively by market participants. There is no external control. All participants can decide, freely, to enter the market. From this point of view, the Forex is a perfect market, because its participants cannot control it.

To better understand the concept of Forex quotations, it should be noted that one unit of the base currency is equivalent to the rate of change in the quote currency. For example, if the pair formed by the euro and dollar, with the euro as the base currency, is trading at 1.2762, the price of one euro in dollars will be 1.2762 dollars.

In Forex you use individual contracts. The standard contract size is 100,000 units. In this case you also talk about one lot. For each lot, the trader controls 100,000 units of the base currency. Some brokers allow you to open mini accounts.

The size of this type of contract is 10,000 units.

Unlike other markets, the Forex allows very low margins thanks to the use of leverage.

The Forex market is always moving. You may decide to maintain an open position for a short period or for a longer period. This depends only by your trading strategies.

There are several tools that help the trader to make the right decisions on the market. The fundamental analysis is based on political events, local and international economy. The technical analysis takes into account price, time and volume of transactions. The latter presupposes the repetitiveness of the market, analyzes the quotes of the past and makes predictions on prices through statistical calculations. Technical analysis and fundamental analysis are complementary to each other. A professional trader must know how to use the best of both tools. He must be aware of the most important economic news, and must know how to read the price charts. Do not forget the importance of a good trading strategy, that can only be built through experience. Investing in Forex is not a game, it requires a lot of devotion and sacrifice. In the end, however, the currency market will repay your efforts.