Simply put, foreign exchange, more popularly known as Forex or FX, is the simultaneous purchase of one currency and sale of another. The market for trading in currencies is known as the Forex Market. While getting started in Forex, you must understand that the Forex market determines the “exchange rate” for which the specified currencies can be bought and sold. This exchange rate is essentially a price and can be analyzed in the same way as we would analyze a price.
This can best be understood by providing an apt analogy in terms of the price of the commodity. Say that commodity is a pencil. If the purchase price of 4 pencils is $1 then, the dollar-to-pencil rate of exchange will be 4 pencils. You can look at this from another angle also. You can also have a fair idea of the pencil-to-dollar rate of exchange. This comes out to 25 cents. This essentially means that if you sell one pencil you can get 25 cents for it. You must understand that the rate of exchange that is available in the newspapers doe not refer to these simple commodities but gives readers information about the comparative prices for different currencies.
Getting Started in Forex!
Forex, in the true sense, is a global 24-hour marketplace. This is because, investors can respond in real time to any fluctuations caused by current economic, social and political events. You can get started in Forex by choosing two currencies you want to trade in. This is because the currencies are traded in pairs, i.e., Euro and Yen, US Dollar and Euro etc. The foreign exchange market is unique due to the extreme liquidity associated with it. Money freely flows from this market since millions of dollars can get in and out of it each day. It is also considered liquid due to the fact that traders can just open and close their trade positions in a wink of an eye!
Bevy of Trading opportunities in Forex
The sheer number of currencies traded is fascinating. There will always be currencies that are moving rapidly up or down, offering opportunities for profit (and commensurate risk) to astute traders. Yet, like the equity markets, Forex offers plenty of instruments such as forward contracts, futures and options, spot market etc, to mitigate risk and allows the individual to profit in both rising and falling markets.
Who can participate in the Forex Market?
Until recently, this 2 trillion dollar market was reserved for banks, insurance companies, large corporations and other large institutions, as the minimum traded volume was rather high. However, less than a decade ago, it became possible for retail investors to get started in the Forex market through dealers. Although the retail market for currency trading is more or less a parallel to the inter bank market, prices in both markets are very similar and move very closely.
Conclusion
The currency markets are hard to resist due to its sheer liquidity, opportunities for booking huge profits and high levels of leverage. However, you must also be aware of the risks involved in this segment so as to make an informed decision before venturing out into the unexplored world of Forex!
A Beginner’s Guide To Forex
FOREX is the abbreviation for the Foreign Exchange market. FOREX is basically an international exchange market where currencies from all over the world are bought and sold for profit. The market today began in the 1970’s. FOREX is a very unique market because it is not based in any particular place, and it also has very few qualifications for investing. FOREX is also free of external controls, and the investors (participants in the market) largely determine how much a currency is worth based on demand. Almost anyone can invest in FOREX, and there are strategies for investors who want to have long-term gains, and strategies for investors who desire short-term gains. The vast array of investors makes FOREX quite unique in the financial community.
The Workings of FOREX
FOREX is not centered at one place like the NYSE. The specific hours for FOREX trade are 24 hours a day from Sunday afternoon to Friday afternoon. FOREX transactions can take place at almost any time, anywhere, all over the world. There are FOREX dealers in almost all of the time zones, and it is simple to find them. Many dealers can be found online. All an investor does is decide what currency he or she wants to purchase, contact the dealer, and then makes the purchase. Many investors purchase using a credit line (money they do not have). This is called marginal trading.
What is Marginal Trading?
Marginal trading is a term used for trading with borrowed capital. FOREX investments can be made without actually having the money. All an investor needs to do is borrow the money for a certain currency. The investor wants to choose a currency that will increase in value quite rapidly. Once the currency increases, the investor pays back the money he or she borrowed and makes sheer profit. This is a high-risk investment, but the rewards are great (as with most high risk investments).
Two Types of FOREX Analytics
FOREX traders often have to analyze the market. Like all investments, FOREX involves a certain amount of calculated risk. Two ways to calculate these risks are though Technical Analysis and Fundamental Analysis.
Technical Analysis is based on the idea that trends through history will continue. A FOREX investor will notice that a certain currency is very strong and seems to be rising at a normal rate. The same investor will also suppose that the currency will not decline in value, and will continue to rise, as it has done in the past. The investor then purchases a large amount of that currency and expects to make a profit. This investment entails a large assumption but is relatively safe.
Fundamental Analysis is an analysis of an entire countries situation. Investors utilizing this technique look at the situation of the country in which the currency finds its base. Factors such as the countries economic status, political status, and global status are taken into account. For example, a Fundamental Analysis investor would not invest in currency from a country that just overthrew its leader and is in political shambles. Although this investment seems logical, it does not take into account one of the fundamental elements of FOREX trading. FOREX currency values are largely determined by the investors. That being said, Fundamental Analysis assumes that other FOREX traders will view a countries situation in the same way and respond accordingly.
Benefits of FOREX
FOREX can be very beneficial to a variety of people. FOREX trading can gain investors a large amount of money either over a long period of time, or in a short period of time. Investors who choose to invest in FOREX are generally well informed about the market and understand the current situations in many countries of the world. Investing in FOREX is simple and highly recommended for anyone who wants to enjoy profits from top-notch investments.
What Is Forex?
It may come as a shock to the investment rookie, but Forex is the largest market in the world. Forex is an abbreviated form of the term Foreign Exchange, or simply currency. These terms refer to the monetary value of one country’s money value (as measured by the country’s largest single-value denomination) and is usually measured in comparison to the unit of currency used by the country in which the investor is a citizen.
The measure by which Forex is considered the largest market is in terms of cash value traded, and it is used by every type of investment imaginable, from individuals (who use brokers or banks) to governments to international banking firms. Forex is extremely popular due to its extreme liquidity and its time capacity (with three large stock markets open day long during the week, it is possible to exchange foreign currency at every hour of the day). Liquidity is a term that is short for market liquidity, which refers to the ability to quickly buy or sell without causing a dramatic fluctuation in price. As currency for countries is determined mostly by internal (domestic) factors rather than external ones, Forex is not subject to the fluxes caused by a panicked sell-off.
As the industrial market place and arguably the defining center of the world, the dollar of the United States is used by far the most in Forex transactions. Involved in 89% of transactions, the US dollar was way ahead of other currencies, followed distantly by the euro (37%) and then the yen (20%). Remember that the numbers here do not add up to 100% because every transaction will contain at least two different currencies.
Forex speculators are a controversial topic among economists and politicians alike. One school of thought posits that currency speculation can contribute to a country’s economic downfall, as a lower currency value causes the price of inflation in comparison to imported goods to rise, snowballing the problem. Countries that are primarily exporters to a country with a higher currency value, however, receive benefits when their dollar is lowered in comparison, as their goods are thus inherently easier to purchase. The opposing view to the speculators as instruments of economic downfall is that speculators serve to keep currency regulated according to international agreements, and that their profits are the results of basic economic laws. Those who subscribe to this theory often point out that the opposing view is held all too often by leaders seeking to deflect attention away from their own domestic policies when explaining to a populace why their economy is in the toilet.
Individuals wishing to become involved in the Forex market need to remember that they must do so through a broker or bank, bodies regulated by their governments and international agreements to prevent the unlawful profit resulting in economic damage to a different country. Investing through these bodies inevitably means that the individual will not see the full results of their investment, as they naturally provide some insulation for themselves against loss in the fluctuating market.
