What is Forex or Foreign Exchange?
In order to get into the basics of Foreign Exchange Market, let us first try and understand the meaning of the term ‘Foreign Exchange’. The term Foreign Exchange is the ‘the simultaneous transaction of one currency for another. ‘The exchange of money denominated in the currency of one nation for money denominated in another nation’s currency is known as Foreign Exchange or Forex. This could be done either by a businessman transacting overseas, or by a tourist who is traveling with traveler’s check. The investor’s market is also known as a big Forex hub, where investors exchange hundreds and millions of foreign exchange regularly.
What is Forex Market and what are its goals?
The Forex market is also known as a 24X7 ‘cash market’ where currencies of different nations are regularly traded via brokers. A constant sale and purchase of foreign currencies is carried out in this market for both local and global marketers. The transactions and market conditions of this market can change randomly depending upon the events and incidents occurring at different places across the globe.
The goal of the investors dealing in the Forex market is to profit from the foreign currency movements. The currency trading is usually carried out in currency pairs. The currency rate between two countries is popularly known as the ‘Forex Rate’.
What do we understand from Exchange Rate?
Just like the rate between the currencies of two different countries is known as the currency rate. The final rate at which they are exchanged in the foreign exchange market is known as the ‘exchange rate’ of the two currencies. Some of the most popularly traded currencies that transact amongst one another are:
- The US Dollar (USD)
- The Euro (EUR)
- The Japanese Yen (JPY)
- The British Pound Sterling (GBP)
- The Australian Dollar (AUD)
- The Swiss Franc (CHF)
These are the major players of the Forex Market and contribute towards majority of the foreign exchange trade.
There are number of factors that can easily distinguish a stock market from a foreign exchange market. While the Foreign exchange market is the biggest financial market in the world, the Stock Exchange is usually limited to individual countries. More over transactions at Forex Market is comparatively much lower than that of the Stock Exchange.
Another major difference that distinguishes the Stock Exchange from Forex is the accessibility of the market. While the Stock Exchange works for limited hours a day, the Forex Market is open 24X7.
What is the potential of the Forex Market?
Now that we are familiar with the tremendous demand and wide spread reach of the foreign exchange market, it is also essential to know, the kind of potential this market contains. It is believed that this market exchanges an average of 5 Trillion dollars across the globe every day. Thousands of deals on buying and selling of foreign currencies are closed by traders who are sitting at Forex offices across the world. The traded money that Forex market profits, is utilized in the import and export of goods for various companies.
What is Leverage and how does it work in the Forex Market?
Leverage is used to amplify gains and losses in the foreign exchange market and tends to be high compared with other areas of the capital markets. It allows a trader to effectively trade using borrowed money from the broker who is handling his Forex account. Whenever an investor decides to invest in the foreign exchange market, he usually opens up a margin account in the Forex market in assistance with a broker. Once this is done, the broker provides him a leverage depending upon the size of investment he has done in the trade.
How to choose a Broker in the Forex Market?
Anyone who is looking to start trading the Forex market must be very careful about his or her choice of forex broker. The first most essential aspect in the selection of a broker is to make sure that that they are professionals and have a good reputation in the market.
It is the duty of a professional broker to guide you in the investment procedure. Apart from you deciding how much minimum money you should invest in the market, your appointed broker must also provide you with ideas and techniques in which, you can benefit from the transactions that you make in the Forex market.
It is the duty of a broker to ensure that you obtain profit from your Forex market investment. A number of brokers accept only bank transfer and check deposit. There are possibilities that you miss out on good opportunities due to this. Therefore, ensure that your broker is also ready to use credit card money depositing scheme, this will provide ultimate speed and convenience.