What is FOREX?
Foreign Exchange Market (Forex) is the arena where a
nation's currency is exchanged for that of another at a mutually agreed rate.
It was created in the 70's when international trade transitioned from fixed to
floating exchange rates, and nowadays is considered to be the largest financial
market in the world because of its tremendous turnover.
Probability of earning on Forex is based on the fact
that every national currency is a good, as well as wheat or sugar, and a medium
of exchange, as gold or silver. As the world is changing so fast, economic
conditions of every country (production, inflation, unemployment etc) are getting
more and more dependant on each other, as a result, the rate of a currency
changes against other currencies. This is the main reason of the process of
rate fluctuations.
Why FOREX?
Nowadays Foreign Exchange Market (FOREX)
is the
most profitable sector for your
investments.
Unlike other financial markets the Forex market has no
physical location, like stock exchange, for example. It operates through the
electronic network of banks, computer terminals or just by phone. The lack of
physical exchange enables the Forex market to operate on a 24-hour basis,
spanning from one zone to another across the major financial centers (Sydney,
Tokyo, Hong Kong, Frankfurt, London, New York etc). In every financial center
there are a lot of dealers, who buy and sell currencies 24 hours a day during
the whole business week.
Here the most important reasons why Forex is so
popular nowadays:
· Liquidity. Forex is the largest financial market in the world,
with the equivalent of over 3-4 trillion changing hands daily when the volume
on the stock markets is only 500 billions of dollars.
· Flexibility. Because of 24-hour trading participants of the
foreign exchange market would not wait to react on some events, as this happens
on other markets (for example: stock markets). On other markets you simply can
be late if you have to wait till morning to show your reaction, as in the
morning the event will be already in the price, greatly differ from the desired
level.
· Lower transaction costs. Traditionally the Forex market has no commissions,
except spread, the difference between ask and bid prices.
· Price stability. High liquidity helps ensure price stability, when
unlimited contract size can be executed at a fair price. It helps to avoid the
problem of instability, as it happens in the stock market and other exchange-traded
markets because of the lower trade volume, where at one price only limited
number of contracts can be executed.
· Margin. Margin size for trading on Forex is defined in the
contract entered between a client and a bank or a brokerage company, which
gives the opportunity to enter the market for the individuals and usually it is
1:100. So, the collateral of 1000 US dollars allows a trader to make deals on
$100.000. Such high leverage combining with the rapid rates fluctuation make
this
market
profitable but at the same time extremely risky. FOREX may be classified by
several features:
Type of transactions. For example, there is an international conversion
market (conversion transactions such as US Dollar / Japanese Yen or US Dollar /
Canadian Dollar etc.).
Geographic
feature. Unlike
other financial markets the Forex market has no physical location, like stock
exchange, for example. It operates through the electronic network of banks,
computer terminals or just by phone. The lack of physical exchange enables the
Forex market to operate on a 24-hour basis, spanning from one zone to another
across the major financial centers (Sydney, Tokyo, Hong Kong, Frankfurt,
London, New York etc). In every financial center there are a lot of dealers,
who buy and sell currencies 24 hours a day during the whole business week.
Trading session starts in Far East, in New Zealand (Wellington), then Sydney,
Tokyo, Hong Kong, Singapore, Moscow, Frankfurt-on-Maine, London and ends in New
York and Los Angeles