The foreign exchange (Forex) market is the most dynamic and largest financial market on earth and exists where currency is traded. This applies to large private banks, central/federal banks, currency speculators, large corporation and governments. The average daily trade in the global forex market is just over US$ 3 trillion. You don't have to be a rocket scientist to understand the fundamentals of forex and how the market works. The goal is to research the currency exchange rates and buy and sell currencies at prices that will make you a profit. While profit margins are low on a per-unit basis, the potential for large gains comes when trading large amounts of currencies. Let's take a look why the forex market is special.
Forex is unique, in that, the overall trading volume and the extreme liquidity of the market makes it very possible to reap huge rewards that can change your life. Keep in mind, however, that you can also lose a lot too. It really depends on your research and sources of information that you rely on to make an informed decision. Another unique aspect of the forex market is that it's a 24-hour market, with the exceptions of weekends and holidays. This can result in more opportunities and time to adjust to market conditions. According to BIS, the average turnover in forex is estimated at $3.21 trillion. Unlike the stock exchanges, forex is an OTC (Over-The-Counter) market whereby brokers negotiate directly with each other.
There are several factors that influence the forex markets. The first being economic factors for any particular government. It could be economic policy, economic conditions and indicators, budgets deficits or surpluses and trade deficits. These factors have an astronomical effect on the value of a currency. The second factor is political conditions of the country that the currency is used in. Instability in the region and its relationship with neighboring countries also have an effect on the value of the currency.
There are several types of financial tools that is used in forex. These are more or less terms that are used to identify a particular investment.
-Spot: A spot transaction is a "direct exchange" of two currencies. This option has the shortest time frame and involves actual cash rather than contracts. Spot trading is the largest by volume in forex among other tools.
-Forward: This is simply where a seller/buyer agree on a future date and exchange currency, regardless, of market conditions.
-Future: Future trading can best be described as buying a certain amount of currency for today's price under the speculation that the currency will increase in value within the contract time (typically three months)
-Swap: The most common exchange on the forex market. This is where two parties exchange currencies for a length of time and then swap back at a later date.
-Option: This is when the owner of a currency has the right to exchange money from one currency to another currency at a pre-agreed exchange rate on a specific date. This is a good option if you think that the price of a currency is going to increase, therefore, producing a more valuable currency than what you exchanged for it.
I hope this has given you some insight into the world of forex trading. I want to stress that it is not an easy thing to do and its certainly not a get-rich-quick scheme. If you put in the time and effort and educate yourself about the forex world, you can make great amounts of money over time. For more information about forex exchange trading, feel free to visit my website (listed below).
| Ryan K. is the founder of http://www.easyhowtoonline.com/index-FOREX.html |
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