This article gives a useful overview of the foreign exchange market to those who are interested in forex trading.
The foreign exchange market is unique in many ways. Here, foreign currencies are traded instead of stocks, bonds or commodities. Furthermore, the market has no physical location for trading. Forex trading is held in various financial centres all over the world and they are all connected through the internet. Forex traders from any part of the world can participate in the foreign exchange market through online trading. London is the premier forex trading centre, with other leading centres being New York, Frankfurt, Tokyo and Sydney.
The financial centres where forex trading is held are located in different time zones and anytime you log into to trade, you will find a session open somewhere. This makes foreign exchange trading a 24-hour activity and is one of the reasons for its increased popularity over the years. It is possible to become a part time forex trader and make extra cash while still keeping your day job. Being able to access the foreign exchange market at your own free time makes trading very convenient. As long as you have good internet connection, you can participate in trading from home, the office or even on the move through your mobile device.
The foreign exchange market operates as an over-the-counter market. The exchange rates are not fixed but fluctuate constantly during trading in response to demand and supply. The market is highly liquid, with the frequent changes opening up many trading opportunities for traders to make good profits. Over four trillion U.S. dollars worth of currencies are traded on a daily basis. Such figures make the forex market the largest financial market by far, with the New York stock exchange coming a distant second.
Participants in the foreign exchange market
The biggest players in the foreign exchange market are large financial institutions. The include central banks, commercial banks, investment management firms, hedge funds, multinational companies and governments. The opening up of the forex market has also seen the entry of thousands of individual forex traders. These individual traders contribute a lot to the success of the forex market and represent the tremendous growth the market has undergone over the years. Getting started as an individual forex trader is easy and requires only a small initial investment. That small initial investment can grow into a huge fortune within a short time if you know how to trade in the foreign exchange market.
If you want to be a successful forex trader, you must understand how the foreign exchange market works and the factors that influence trading. Forex rates and currency values are closely tied to matters of the economy. Economic and political factors cause the rise and fall of currency values in the forex market. Therefore, you must know how issues like trade deficits, interest rates, inflation and gross domestic product cause changes in the market. The foreign exchange market is also known to experience a lot of activity during political unrest or important political events like presidential elections. Any issue affecting the economy will eventually cause changes in the forex market.
Preparing for the foreign exchange market
The volatility of the foreign exchange market means that forex trading has its own risks just like other investment ventures. You must therefore approach the markets cautiously and trade wisely especially if you are new to forex trading. It is not unusual for new traders to lose most, if not all of their trading investment because they rush into forex trading without proper preparations. If you are interested in foreign exchange trading, you should first learn the trade. You can register for an online forex course to ensure you know what you are doing when you eventually enter the markets.