An Overview of Forex Trading

What is forex ? Forex is all about the free trade of currencies and various traders buy one currency with another by placing orders. The forex market will give people the opportunity to buy currencies with another by acting as a platform and a huge number of people have been showing tremendous enthusiasm towards forex (Foreign currency exchange). The forex market can be described as the biggest financial market in the world and the volume of trading exceeds more than $4 trillion dollars in each day. The US dollar is being used as the main currency in forex trading.

what is forex

 

The Origin of Forex

Before answering the question, 'what is forex', it is always advisable to learn about the origin of the forex. Economic stability was in shambles during the Second World War and there was an urgent need for some remedial measures. Representatives from 29 countries assembled in Bretton Woods to design a new economic system and one of the major decisions was to fix exchange rates. International Monetary Fund (IMF) came into existence in the year 1949 under the Bretton Woods agreement and it was agreed that IMF would have to approve all exchange rates changes above 1%.

During the late 1960's, various economic and political developments played an important role in the breaking down of the fixed exchange rate system and this situation paved the way for the arrival of floating rate currency markets. The free trading of currencies became a reality with floating rates currencies and market forces played an important role in the variation in the prices. That is how the modern forex market was born and without a basic understanding of these aspects, one will not be able to answer the question, 'what is forex', in the best possible manner.

The Players in the Forex Market

While answering the question, 'what is forex', one should have a better awareness about the players in the forex market. There are a good number of players in the forex market and the interest of the players differ as well. Some players trade to hedge their risks while some others simply require foreign currency for making payments for goods and services. Another set of players aim for profit as well. The big players in the Foreign exchange market are Institutional investors, Governments, Corporations, Central banks, Commercial banks, Pension funds, Insurance companies, Retail investors, individuals and other financial institutions.

Timings of the forex market

Forex market functions differently in comparison with stock exchanges and it will be open 24 hours a day. People can trade in this market five days a week as well. Since banks are getting engaged in the process of buying and selling currencies around the clock thee forex market will have to be open for 24 hours a day.

Crucial influencing factors

The basic driving factors of the forex market are supply and demand. The simple theory is that the prices will get increased when buyers outnumber the sellers and the prices will come down when there are more sellers than buyers. The exchange rates will get influenced by various factors like elections, policy changes, economic performance, policies of the central bank, terrorism, natural disasters, interest rates, imports, exports, market sentiments and other immediate developments. The fluctuations in the forex market are limited in comparison with stock markets and it can be described as a more stable market. Making a clear cut idea about all these aspects will always help a person to answer the question, 'what is forex' in the best possible manner.

Advantages of forex market

A huge number of people have been showing keen interest in finding an answer to the question, 'what is forex', because it is the existing largest market in the world with tremendous growth potential. The reach of this market has won great appreciation and people from all parts of the world can take part in the trading process with great amount of ease. Tremendous developments in the field of information technology have played an important role in popularizing the forex market. Making profits from strong and weak economies will become a reality with the forex and people will be able to place short term as well as long term orders according to their own discretion. Another advantage is that the market is not regulated and there will be only minimal brokerage commissions as well.

How to begin forex trading?

Once people get an idea about what is forex, they will be really eager to know about how to begin. As a beginner in this field, a person should be familiar with the fundamental tools as well as technical tools required for forex trading. The basic fundamental tools are market view, Central bank speak, Interest rates and economic news. The technical tools are also important in the beginning stage to learn things faster. Various online forex service providers have been contributing in this line to make the process simpler. The free trial offered by the online agencies will help the people to know the intricacies involved with the foreign exchange trading. The risk management factor should be handled with absolute care to become a successful trader and the volatile nature of this market should be dealt with vigilance. The online supported foreign exchange trading plays a significant role in making matters really easy for the people and a good number of people show great allegiance to online trading.

Conclusion

Basic awareness of the fundamental and technical tools is absolutely essential to become a successful forex trader. The market is huge and the opportunities are countless. The most commonly heard words as far as a forex trading is concerned, are risk aversion, risk tolerance and risk neutral. These varying stages should be dealt with pure vigilance and care to avoid unnecessary and unexpected complications. That is why the world of Foreign exchange trading remains challenging as well as highly rewarding. Those, who are looking for a business to make money part time or fulltime, will find forex trading as the best option. Making profits from the forex market is not an uphill task and people will never have to get bothered about different aspects like recruiting people, marketing and advertising. Problems associated with competition will become nonexistent as well. All these aspects will help people to find an answer to the question, 'what is forex', in the best possible manner.