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Forex Market

31.03.2021

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Forex fame came with accessibility, accessibility with the Internet. More than fifteen years have passed, but this market in Russia is still a “thing in itself”. With black and white reflection in people’s views. Some see him as the source of the fulfillment of the “American dream”, a fairy godmother who can turn all pumpkins into golden carriages, others – a kind of financial “pyramid”.

The truth, as usual, lies on a completely different plane. Forex trading today, when the Internet accompanies even the first cup of coffee at breakfast, is one of the popular tools for private investment, where a taste for risk is successfully combined with the possibility of thoughtful earnings on the world’s largest trading floors.

Since January 1, 2016, Forex has been “in-law” in Russia. Which did not add to his sympathy. Perhaps, in the very near future, the country’s financial market will have to decide on its attitude to Forex.

The foreign exchange market (also Forex from the English. Foreign Exchange – “foreign exchange”, sometimes FX) is a system of stable economic and organizational relations arising from transactions for the purchase or sale of foreign currency, payment documents in foreign currencies, as well as transactions on the movement capital of foreign investors.

In the foreign exchange market, the interests of investors, sellers, and buyers of foreign exchange values ​​are coordinated. Western economists characterize the foreign exchange market from an organizational and technical point of view as an aggregate network of modern communications that connect national and foreign banks and brokerage firms.

Operations in the forex market for purposes can be trading, speculative, hedging, and regulating (foreign exchange interventions of central banks).

From the Templars to the Internet

Forex is the name of the international (or, more correctly, worldwide) interbank foreign exchange market. Acronym for Foreign Exchange Market.

Despite the modern sound of the name, the history of the development of this market goes back to the Middle Ages. His first, as they would say today, brokers were Lombard merchants, whose network of exchange offices in the Middle Ages covered almost all of Europe. Some (again, as they would say today) public organizations also contributed to the development. For example – the once mighty order of the Templars, which pretty much replenished its treasury through financial exchange operations and for a long time claimed the role of the main market maker of the European currency market. True, King Philip IV ended this first success story “in the Forex market” with a somewhat unexpected “stop-loss” – the arrest and execution of the hierarchs of the order. This gave Maurice Druon a plot for a wonderful series of novels but did not in the least dampen his taste for risk.

With the introduction of paper money at the beginning of the 18th century, the foreign exchange market, relieved of such worries as the transportation and storage of large masses of gold, silver, and copper, began to develop at a dynamic pace.

By the 50s of the twentieth century, the market was formed almost in its modern form. And the widespread use of the Internet since the 1990s has made the Forex market available to almost all inhabitants of the planet. Today, the daily turnover of the Forex market is about $ 4 trillion. This makes Forex the largest segment of the global financial industry. At the same time – and the most virtual. Forex cannot be physically touched; it is a global virtual space in which national and commercial banks, insurance companies, investment and pension funds, brokerage firms, and millions of private investors operate. They become both sellers and buyers of certain currencies or futures on other assets. In the process of trading, the levels of supply and demand change every second, respectively, the value of a particular currency also changes, measurable in that

For example, there was a deal to sell 1 euro for 1.2319 dollars, a second later there was a deal to sell 1 euro for 1.2317 dollars. Accordingly, the euro fell by two points or two pips. For some, it means a loss (for those who bet on the euro increase), for someone it means a profit (for those who played on the dollar rise). How much these losses and profits are – depends solely on the volume of the transaction. Maybe two dollars, maybe two million. In a second. However, in another second, this profit may be even greater. Or turn into a loss – depending on which direction the course turns.

This is what gives the Forex market its unique, sometimes even hypnotic appeal. “Small is beautiful,” said the once cunning Japanese, who created the smallest transistors, flat-panel televisions, and dictaphones that fit in the palm of your hand. “Fast is delicious,” Forex apologists can rightfully say. Here money is made with a speed not available to any other business tool in the world. However, they are lost at exactly the same rate.

Forex geography

The working platforms of the Forex market have become several interconnected regional currency markets with the help of the latest information technologies. The most significant of them can be considered the New Zealand and Australian foreign exchange markets (Wellington and Sydney), Asian (Tokyo, Singapore, and Hong Kong), European (London, Frankfurt am Main, Zurich, Paris), and American (New York, Toronto, Chicago, Los Angeles) markets.

This is what gives the Forex market its third unique moment. It is not only the fastest but also a 24/7 worldwide money store. Wellington turns on first, Sydney two hours later, Tokyo one hour later, then Hong Kong and Singapore. Then the relay passes to Europe, where, after Zurich, Frankfurt am Main and Paris, London joins the planet’s biggest money game, and a few hours later – New York, then Chicago and Los Angeles. By the time the residents of the City of Angels go to bed, trading in Wellington and Sydney is in full swing again. There is a break in trading only once a week, on the weekend – from 01:00 Saturday GMT (closing time of the American stock exchanges) to 21:00 Sunday GMT (opening time for foreign exchange trading in New Zealand, where Monday morning is already coming).

Schematically, a typical Forex trade looks like this:

Let’s say you think that the euro will appreciate against the dollar at the moment. You give an order to open a trade based on this forecast. That is, you buy a certain amount of euros for a certain amount of dollars. If the forecast turned out to be correct, the trade brings you some profit (depending on how much the rate has risen). This profit can be fixed by giving an order to close the deal. If your forecast is wrong, the trade brings you some loss (depending on how much the rate has depreciated).

What currencies are traded on Forex

This forex trading guide would not be complete without an overview of the most popular assets available to a trader.

The most popular currency pairs in the world – the US dollar, euro, pound sterling, Japanese yen, and Swiss franc – are included in the group of major currency pairs: EURUSD, GBPUSD, USDJPY, and USDCHF.

There are three other currencies that are common in Forex trading: the New Zealand dollar, the Canadian dollar, and the Australian dollar. If they are linked to the US dollar, we get a group of currency pairs: NZDUSD, USDCAD, and AUDUSD.

All other currency pairs in the Forex market are commonly referred to as “exotic currency pairs” and account for less than 10% of all foreign exchange transactions.

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