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Why Forex?: A World of Opportunities |
Over the last three decades the foreign exchange market has become the world's largest financial market, with over US$2 trillion traded daily. Forex is part of the bank-to-bank currency market known as the 24-hour Interbank market. The Interbank market literally follows the sun around the world, moving from major banking centers of the United States to Australia, New Zealand to the Far East, to Europe then back to the United States.
Forex Market Summary of Benefits |
– Forex is open 24 hours a day. |
Until recently, the forex market wasn't for the average trader or individual speculator. With the large minimum transaction sizes and often-stringent financial requirements, banks, hedge funds, major currency dealers and the occasional high net-worth individual speculator were the principal participants. These large traders were able to take advantage of the many benefits offered by the forex market vs. other markets, including fantastic liquidity and the strong trending nature of the world's primary currency exchange rates.
The Forex market removes the traditional barriers that exist in other markets without restricting the forex traders' ability to make a trade at the right times.
Some examples include:
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Limited floor trading hours dictated by the time zone of the trading location, significantly restricting the number of hours a market is open and when it can be accessed. | The Forex market is open 24 hours a day, 5.5 days a week. Because of the decentralized clearing of trades and overlap of major markets in Asia, London and the United States, the market remains open and liquid throughout the day and overnight. | ||
Threat of liquidity drying up after market hours or because many market participants decide to stay on the sidelines or move to more popular markets. | Most liquid market in the world eclipsing all others in comparison. Most transactions must continue, since currency exchange is a required mechanism needed to facilitate world commerce. | ||
Traders are gouged with fees, such as commissions, clearing fees, exchange fees and government fees. | Commission-Free (GFT is compensated by revenues from its activities as a currency dealer, including proceeds from buying, selling, converting as well as holding currencies and interest on deposited funds and rollover fees.) | ||
Large capital requirements, high margin rates, restrictions on shorting, very little autonomy. | One consistent margin rate 24 hours a day allows Forex traders to leverage their capital more efficiently with as high as 400-to-1 leverage. Without appropriate use of risk management, a high degree of leverage can lead to large losses as well as gains. | ||
Short selling and stop order restrictions. | None. | ||
Pattern daytraders subject to restrictions requiring account balances in excess of $50,000. | No restrictions. Very low account balances. Accounts opened with minimum deposits will be liquidated should they fall below GFT minimum margin requirement (see trading regulations for details). |
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What is the Foreign Currency Trading Market?
The Foreign Currency Trading market, known also as Forex or Foreign Exchange market, is a trading market for simultaneously buying one currency and selling another.
Size of the Foreign Currency Trading Market
The Foreign Currency Trading market is the largest market in the world, with trades of over $1.95 trillion every day. This is more than three times of the total stocks and futures markets combined. Even though it is the biggest market in the world, its size is all virtual and it does not occupy any physical center. The Foreign Currency Trading market is run entirely through electronic means, and has no physical location, and so actual Foreign Currency Trading is done mainly through the internet.
All-Day Foreign Currency Trading
Currency Trading is in play almost all the time- this means people are trading foreign currencies 24 hours a day 5 days a week. Unlike the stock market, Foreign Currency takes place directly between the two sides that are necessary to make the trade. This is only one of the advantages of the Foreign Currency Trading market.
Real-Time Currency Trading
The online Foreign Currency Trading market is almost entirely a "spot" market. A "spot" market means that the trading is made immediately or "on the spot".
Major Foreign Currencies
The main currencies that are traded in FOREX are:
- U.S. dollar (USD)
- Euro dollar (EUR)
- Japanese yen (JPY)
- British pound sterling (GBP)
- Swiss franc (CHF)
- Canadian dollar (CAD)
- Australian dollar (AUD).
Online Foreign Currency Trading Strategy
Currency prices are determined by a variety of economical and political conditions, but probably the most important are interest rates, international trade, inflation and political stability. Foreign Currency traders analyze these statistics using two Foreign Currency Trading systems: technical analysis and fundamental analysis. Select the forex market, select the time, and start trading. The massive liquidity of forex, combined with a true 24-hour forex market that's traded 5.5 days a week, offers you exceptional independence and forex currency trading when you want to, not when the market wants you to. The forex market literally follows the sun around the world, moving from major banking and financial centers of the United States to Australia and New Zealand to the Far East, to Europe and finally back to the United States.During each trading day, overall foreign currency trading volume is determined by what markets are open and the times each of these markets overlap one another. With each passing second, minute and hour, forex currency trading volume remains high, but peaks highest when the British, European and U.S. markets are open at the same time - from 1 p.m. GMT to 4 p.m. GMT. The volume of the Pacific Rim markets, such as Japan and Hong Kong, subsides compared to the crest of the U.S. market, but still offer the forex trader the ability to analyze the highly traded Pacific Rim currencies. Currency trading is not conducted on a regulated exchange, and as a result there are associated risks with forex trading.
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In the Forex market, all trades must be settled in two business days. Traders who want
to extend their positions without having to settle them must close their positions before 5pm Eastern Standard Time on the settlement day and re-open them the next trading the day. This pushes out the settlement by another two trading days. This strategy, called a rollover, is created through a swap agreement and it comes with a cost or gain to the trader, depending on prevailing interest rates.
The Forex market works with currency pairs and is quoted in terms of the quoted currency compared to a base currency. The investor borrows money to purchase another currency, and interest is paid on the borrowed currency and earned on the purchased currency, the net effect of which is rollover interest.