Forex or foreign exchange is buying, selling or exchanging one currency for another. In terms of volume, the foreign exchange market is the world’s largest market by far. It is dominated by international banks. The world’s financial centers facilitate trading in currencies 24 hours a day from Monday to Friday. Forex trading takes place between many different types of buyers and sellers. Currencies are traded in pairs. The market doesn’t set the absolute value of a currency. Instead, it determines one currency’s value relative to another. For example, one U.S. dollar is valued at X number of Euros.
The forex market helps with international investment and trade by facilitating currency conversion. Typical foreign exchange transactions involve one party purchasing a set quantity of a currency and paying for it with a specific amount of another currency. The modern forex market began in the 1970s following 30 years of governmental laws restricting foreign exchange transactions. The Bretton Woods money management system had set the rules controlling financial and commercial relations among the major international countries after World War II fxtrade 777 Gradually, countries adopted floating exchanges rates.
The foreign exchange market has unique characteristics. They are a huge trading volume, high liquidity, geographical dispersion, continuous operation and relatively low-profit margins. This has led some to call it the ideal market. People have been exchanging currencies since ancient times. In 1973, modern free-market foreign exchange began in developed nations. China, South Korea, the United States and the United Kingdom were some of the first nations to participate in forex trading. By 2010, $3.98 trillion changed hands each day through the forex market.
While commercial banks, securities dealers, commercial companies, central banks and investment management firms dominate the forex market, a growing number of individuals called retail foreign exchange traders are becoming involved in the forex currency market through retail FX brokers. This gives private citizens the opportunity to become involved in speculative currency trading. There are two types of retail FX brokers. They are brokers and dealers, also known as market makers. Brokers act on behalf of the investors and market makers set the transaction prices.
The world’s primary centers for forex trading are located in London, New York City, Hong Kong, Tokyo, and Singapore. Currency trading takes place all day long. When trading ends in the Asian markets, it begins in the markets in European. The trading activity then moves to the markets in North America. Forex trading then picks back up in the Asian markets. Changes in the exchange rates tend to reflect changes in the gross domestic product, inflation, budget and trade surpluses and deficits, interest rates and macroeconomic condition in the currency’s country of origin.
Economic factors, political conditions, market psychology, financial instruments and many other factors can also impact forex exchange rates. For people interested in getting involved with forex trading it is important to understand the terms and jargon.
Currency pairs, a percentage of points or pips, spread, bid, ask the opening and closing of a position and stop loss are some of the most important ones.
There is also some key information forex investors must share with their brokers when they are interested in making a trade. It includes what it is they are interested in buying or selling, how much they would like to buy or sell when to take the profit if all goes well with the trade and when to activate the stop-loss if the trade goes bad.
Forex trading is exciting and it can also be very lucrative. The key is doing adequate, in-depth research before you make your trades.