How to Start Trading the Forex Market?
What Is FOREX or FOREX MARKET?
With more than $1.5 trillion transactions per day, the Foreign Exchange market is the world’s largest financial market.
Even when US treasury markets and equity markets are combined, they fail to reach near this massive amount.
Contrary to the other financial markets that have a rather localized operation, the Forex market operates worldwide and there is no central location for it. It’s a global conglomerate of financial institutions, bankers and individuals dealing in foreign exchange. The Forex market operates 24 hours a day, and this is one of its major features. The opening timings basically correspond to the respective financial centers across the world, and start each day in Sydney, Tokyo, London and New York respectively in along with their national financial institutions. As the most liquid market of the world, at any location or time, there are some buyers and sellers dealing with respective national currencies.
Earlier, the Forex market was only accessible to banks and other large financial institutions. However, the technology has improved over the years, and it has become viable for individuals as well to operate on the foreign exchange market. So now apart from banks and financial institutions, many traders trading in retail accounts and money manager’s access the Forex market trading as it is available for everybody. It has never been so easy to operate on this exciting global market, and you can also become an active player on this largest market on the planet by opening your Forex account.
If you have any experience of trading currencies on the future market, you will find fores market operates totally different and much easier than trading stocks or commodities in stock exchanges.
Even if you are not directly involved with the Forex market, the very fact that you are holding some currency in your wallet, particularly us dollar makes you involved with Forex market rather indirectly. Holding US dollars indicate that you have not chosen to hold the currencies of other countries, and it increases the demand of dollars against other currencies. When you invest in stocks, bonds, securities or save money in a bank account, you are expressing your decision based on the integrity of the value of your currency that is US dollars in this case. A number of factors change the value of the US dollar and thus result in exchange rate fluctuations that may directly affect the value of your investments. You might feel surprised to know that many investors try to take advantage of these fluctuations to gain financial advantage through dealing in foreign currencies and improve their overall financial status.
Example: suppose if the exchange rate against Euro is 1.50 Euros per dollar, you might exchange your $1000 for 1500 Euros. Now if the exchange rate improves for dollar against Euros and becomes equal to US dollar that is 1.0 Euro per dollar, and you get $1500 for your 1500 Euros.
You might see the following:
EURO/USD last trade 1.5000 simply means that one dollar is worth 1.50 Euro.
The base currency is the first currency (in this case Euro), and the second currency is called the quote currency (USD in this case).
The commerce and trade between the countries require liquidity and this cause a tremendous increase in exchange for different currencies making a very volatile exchange rate and thus Forex play a vital role in the world economy. International trade increases with every technological and communication improvement and the need for a Forex market will be felt as long as the world engages in trade and commerce across the nations. A market for foreign currencies has to exist for US companies to sell a product in Germany and receive US dollars instead of Euros.
Risks of currency trading
Foreign currency trading is a very risky business, and the volatile nature of currencies make it only suitable for large financial institutions that are capable of handling potentially heavy losses. However, you can trade in Forex market on a highly leveraged basis that may go up to 400 times of your account equity with your broker. Even a one-percent swing in value of the currency might completely wipe out the entire funds of the account trading at full leverage. As the possibility of losing the entire capital is very high in such volatile market, it’s always advisable to trade with risk capital funds so that the investor’s financial situation is not adversely affected.