Forex Investing
Filed under: Forex Investing
The foreign exchange market, also called Forex, FX, or currency market, is the hugest capital market worldwide; it involves exchanging about 2 to 3 trillion dollars every day. It is a worldwide financial market that is decentralized for currency trading. Financial centers are considered anchors of trading between different buyers and sellers. The foreign exchange market determines the value of currencies. In other words, Forex is another way of investing, and its principles are very similar to principles of trading anything else; it involves buying low and selling high.
The main reason of exchanging foreign currencies is to enhance international trade and investments; this is done through enabling businesses to exchange one currency with another. Moreover, it also enhances speculation, and eases the carry trade, where investors borrow currencies that are low yielding, and lend currencies that are high yielding. Many traders consider the foreign exchange market a mystery. It’s important for all investors and non-investors to understand the principles of the Forex market and the way it works.
There are different degrees of access in the Forex market, at the highest degree there exists the commercial banks and securities dealers in the “inter-bank” market, and they carry out about 53% of all transactions.
The features of the foreign exchange market:
- It involves a large trading volume, and thus leads to high liquidity
- It features geographical dispersion.
- It is continuously operating 24 hours a day except weekends, thus trading from 20:15 GMT on Sunday until 22:00 GMT Friday.
- It involves different factors that affect exchange rates.
- It involves the low margins of relative profit compared with other markets of fixed income.
- It involves the usage of leverage to raise profit margins with respect to account size.
Forex is a considered a distinctive market because of several reasons. First, it is one of the rare markets that don’t involve external controls and can’t be manipulated. Second, it is the hugest liquid financial market, it involves trading about 2 to 3 trillion US dollars everyday, and this makes it almost impossible for individual investors to influence the price of a major currency. Third, unlike stocks, that are not being frequently traded, investors have the ability to open and close positions within seconds because there are always existing buyers and sellers that are willing to trade. Fourth, the individuals involved in the Forex market are investing for different reasons; some of them are long term investors, whereas others use huge credit lines to generate huge short term gains. Fifth, unlike blue chip sticks, that most often attract long term investors, the existence of little daily fluctuations in currency prices creates a highly attractive environment for investors with different strategies.
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