What
is the Forex?
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to trade 
What is the Forex?
The Foreign Exchange market, also referred to as the "FOREX"
is the biggest and largest financial market in the world.
It has a daily average turnover of US$1.9 trillion- just imagine
that amount of money! Don't you want to join this trillion-dollar
industry?
FOREX is the simultaneous buying of one currency and selling
of another. Currencies are traded in pairs, for example Euro/US
Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). So basically,
FOREX is trading.
There are two reasons to buy and sell currencies. About
5% of daily turnover is from companies and governments that
buy or sell products and services in a foreign country or
must convert profits made in foreign currencies into their
domestic currency. The other 95% is trading for profit, or
what you call speculation. Investors frequently trade on information
they believe to be superior and relevant, when in fact it
is not and is fully discounted by the market.
On one side of each speculative stock trade is a participant
who believes he has superior information and on the other
side is another participant who believes his information is
superior.
For speculators, the best trading opportunities are with
the most commonly traded (and therefore most liquid- meaning
its in cash or convertible to cash) currencies, called "the
Majors." Today, more than 85% of all daily transactions
involve trading of the Majors.
A true 24-hour market, FOREX trading begins each day in Sydney,
and moves around the globe as the business day begins in each
financial center, first to Tokyo, London, and New York. Unlike
any other financial market, investors can respond to currency
fluctuations caused by economic, social and political events
at the time they occur - real time- day or night.
The FOREX market is considered an Over The Counter (OTC)
or 'interbank' market. This is because the transactions are
conducted between two counterparts over the telephone or via
an electronic network. Trading is not centralized on an exchange
compared to stocks and futures markets.
What are the benefits of trading the Forex.
Low minimum investment.
The Forex market requires less capital to start trading than
any other markets. The initial investment could go as low
as $250 USD, depending on leverage offered by the broker.
This is a great advantage since Forex traders are able to
keep their risk investment to the lowest level.
Liquidity
Forex is by far the most liquid market in the world. There
is NEVER a problem buying or selling a position as in the
stock market. The Forex market can absorb trading volumes
and per trade sizes that dwarf the capacity of any other market.
On the simplest level, liquidity is always a major attraction
to any investor as it allows one the freedom to open or close
a position at will. You can access the funds in your Forex
brokerage account as easily as you can your bank account.
24 Hour Market
Foreign exchange trading is the only 24 hour market. It
is the ideal market for active traders. Unlike stock and futures
trading, currency trading on the Forex market is not cut short
at the "close" of each day's trading. Forex trading
is never paused, which ensures true 24 hour trading and the
ability to trade during virtually any important event. The
benefit of Forex being a 24 hour a day market is that there
are little or no gaps in the market, meaning there is no chance
that prices will close one day and reopen the next day at
radically different rates.
When you are trading equities or futures, the central exchanges
close at the end of the business day. This means that there
is no liquidity in these markets after hours since the market
is closed, which makes trading impossible. In addition, there
is a high degree of risk for traders who have open positions
after the market closes. If news or events take place after
the close that affect their positions they will have no opportunity
to liquidate their trades. The next day, at the open, prices
may immediately jump drastically, forcing the trader to close
their positions at a rate which they incur a far greater loss
than if they were able to close their position after hours.
The continual, 24 hour a day liquidity of the Forex market
ensures that the trader can always open or close a position
anytime, thus eliminating the large potential risks with market
gaps.
Leverage trading.
Trading the Forex Market offers a greater buying power than
many other markets. Some Forex brokers offer leverage up to
400:1, allowing traders to have only 0.25% in margin of the
total investment. For instance, a trader using 100:1 means
that to have a US$100,000 position, only US$1,000 are needed
on margin to be able to open that position.
Leverage trading.
Trading the Forex Market offers a greater buying power than
many other markets. Some Forex brokers offer leverage up to
400:1, allowing traders to have only 0.25% in margin of the
total investment. For instance, a trader using 100:1 means
that to have a US$100,000 position, only US$1,000 are needed
on margin to be able to open that position.
Low Transaction costs.
Almost all brokers offer commission free trading. The only
cost traders incur in any transaction is the spread (difference
between the buy and sell price of each currency pair). This
spread could be as low as 1 pip (the minimum increment in
any currency pair) in some pairs.
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