What Is Forex Trading Online
What is forex in simple words?
Let us immediately determine that Forex is a market in which, online, interested people (traders) exchange one foreign currency for another at the rate of the largest global OTC participants. The market is so liquid and global that it is not tied to specific exchanges. Opening deals online is faster and more profitable than in an exchange office near your home.
However, the amounts appearing here are many orders of magnitude higher, and therefore the trading turnover of the forex market at the moment is the largest in the world. In fact, neither the stock market with all the stocks in the world nor the metals market with all the available gold in circulation, can not compare with the forex market in terms of sales and purchases, the average daily turnover of which exceeds 6.5 trillion. dollars.
Just imagine this financial power!
The meaning of the Forex term
Forex (FOREX) stands for the exchange (exchange) of foreign (foreign) currency. These two words form the basis of the abbreviation Forex or FX.
In this market, it is really possible to start making transactions for the purchase and sale of foreign currency in a split second, since it operates around the clock 5 days a week, and has a huge turnover. Fluctuations in exchange rates are several times lower in comparison with the stock market. The combination of these properties allows brokers to provide margin trading for their clients, that is, you can open deals with a volume that significantly exceeds your current financial capabilities. For this, brokerage intermediaries provide leverage. You can read more about this most important condition for trading in the foreign exchange market for private traders in a separate article on the FxTeam website.
How does forex work?
The main thing to understand about forex is that the price of a currency is constantly changing.
Now, for example, the euro costs $ 1.2, and an hour later it costs $ 1.19. The value of one currency expressed in another is called a quote. Each such quote gets to the chart in the trading platform and puts a full stop to it. This point is automatically connected to the previous mark of the asset’s price. So in forex, in real-time, a price chart is drawn, and traders sit in front of monitors or smartphone screens and watch how the chart changes in order to understand when to start trading.
We have already mentioned a widespread modern solution – leverage. Its essence boils down to the fact that at the moment of opening a deal, the brokerage company adds its own additional funds to your own funds. The size of this bounty ranges from 1: 1 (when you trade only with yours) to 1: 500 (when the broker adds another 500 for every dollar you own).
Also, brokers often allow their clients to trade in smaller volumes than they are traded on the market, that is, fractional lots. The standard minimum transaction size is about $ 100,000. However, many brokers allow you to make transactions with a tenth or one-hundredth of this amount.
Thus, it turns out that it is possible to join trading on the global forex market and trade amounts from $ 10,000 even with a relatively small capital, i.e., from $ 100.
What is Forex Traded?
The main currencies traded through online platforms are the US dollar (USD), euro (EUR), Japanese yen (JPY), pound sterling (GBP), and Swiss franc (CHF). However, you can start trading cross rates: pairs in which the US dollar is not present.
If all is well in the country and indicators of the health of the economy are even better than expected, then the exchange rate of the national currency will most likely grow. And if the news is bad and the statistics on the region are not encouraging, then one can not count on the growth (strengthening) of the currency. In other matters, not everything is so simple, fluctuations occur within a week or a day, and visual lines help to work with them, the so-called. technical indicators of trade. They help determine in which direction the price is now moving, how strong the existing trend is, and what will potentially come next.
Traders are guided by these indicators and economic news from the feeds of global news agencies. Based on the entire array of information, users draw conclusions, seize the right moment to start – and open up and down trades, buy and sell.
Here’s how it works: let’s take as an example the most popular currency pair in the market – the Eurodollar (EURUSD). The US dollar in forex depends on the situation in America, the euro depends on the situation in the European Union. Traders around the world receive news on these regions and react to them either by increasing demand for the euro and dollar or by decreasing.
If there are more of those on the market who are determined to buy the euro (the currency that is the first in the pair), the price of EURUSD rises. If there are more of those on the market who are willing to sell euros, the price of EURUSD falls. This is how the basic law of Supply and Demand works.
Those who believe that quotes will rise are called bulls. Those who are confident in the fall in prices are called bears.
However, if the statistics for the Eurozone are not impressive for traders, and there are more of those on the market who are inclined to buy dollars (the second currency in the pair), then the EURUSD rate will begin to decline, i.e. go in favor of the dollar. Analysts say about this situation: “The dollar began to strengthen against the euro.”
Their main task in the process of online trading in foreign exchange regulation in the external market, namely, to prevent sharp jumps in the rates of national currencies. This is necessary in order to prevent the start of another wave of the economic crisis, as well as to maintain the balance of exports and imports. Central banks, their decisions, and representatives’ speeches have a direct impact on the forex market.
In the US, the main regulator is the Federal Reserve System (FRS), in Europe – the European Central Bank (ECB), in Britain – the Bank of England (BoE), in Japan, respectively, the Central Bank of Japan.
They carry out the bulk of foreign exchange transactions. The rest of the market participants, through accounts opened in commercial banks, carry out the necessary exchange and deposit-credit operations.
The world’s foreign exchange markets are most influenced by large international banks, whose daily volume of transactions reaches billions of dollars. For example, these are Deutsche Bank, Barclays Bank, Union Bank of Switzerland, Citibank, Chase Manhattan Bank, Standard Chartered Bank, and others.
Firms that carry out foreign trade operations
Companies involved in international forex trading are divided into importers and exporters. Importers constantly demonstrate a stable demand for foreign currency, while exporters, on the contrary, offer foreign currency for sale, and also place or attract free foreign exchange funds as short-term deposits.
Companies that invest assets abroad
These are, first of all, investment funds, Monetary funds, and International corporations such as Xerox, Nestle, GE (General Electric), BP (British Petroleum), and others.
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