What is Forex?
Forex (FX) or foreign exchange is the marketplace for buying and selling currencies of different countries against each other. Forex is one of the largest global financial markets for trading various currencies.
The Forex market provides services 24 hours a day. It opens five days a week and operates around the world online. It simply means that any person around the globe has access to currency trading — he or she can buy and sell positions at any time of the workweek.
The point is that there is no need for physical presence while currency exchange. Nowadays it is the time of electronic markets. Thus, buying and selling currencies of a particular county against the relative currency of the other county is happening on the Internet. Traders open a specific currency position and hope for some strengthening of the desirable currencies if the aim is buying or for some weakening if the aim is selling. Due to such price movements, traders can make a profit.
There is no way to trade a currency one-sidedly. Trading is a relative process — when someone buys, someone sells. Thanks to the difference between these transactions, traders benefit.
How FX Works
One of the most important things worth understanding is the fact that the Forex market operates as a decentralized structure. In other words, it can be explained like that: there is no physical location where investors go to trade currencies.
Market players are located all over the world. The Internet helps them to check the quotes of various currency pairs from different dealers. The main global financial centers accumulate the largest foreign exchange markets. Major cities where these centers placed are London, New York, Singapore, Tokyo, Frankfurt, Hong Kong, and Sydney. All of them perform like so-called milestones for traders. The access to the interbank currency market, traders choose a Forex broker who connects them with the international flows.
Who the Major Forex Players are
Forex trading involves many people and organizations. Some of them trade to make profits. Others trade to hedge their risks. Moreover, some traders use foreign currencies to pay for needful goods and services.
The main FX players are super banks like Citi, UBS, Barclays, Deutsche Bank, Goldman Sachs, and Bank of America. These banks, collectively known as the interbank market, collect an enormous amount of financial transactions daily.
Large commercial companies are also taking part in the foreign exchange for the purpose of business. Examples of such companies are Apple, Facebook, and Microsoft. Mergers and acquisitions between these companies can create fluctuations in the currency exchange rate. Due to this international cross-border mergers and acquisitions, many currency conversions happen and move the prices.
Apart from super banks and large commercial companies, constant Forex market participants are governments and central banks such as the ECB (European Central Bank), the BoE (Bank of England), and the Federal Reserve.
National governments participate in the Forex market to handle foreign exchange reserves and provide different trading operations. Central banks affect the market with their policy and statements. They can control inflation and use interest rates for this purpose.
Besides a grand variety of banks, multinational companies, and governments, there are also many risk-seeking investors who are always ready to engage in different sorts of speculations.
It is better to concentrate on the purpose of speculations in the market to clear up what speculation is. This action involves the buying and selling of currencies with the intention to make a profit.
Among a wide range of risk-seekers, are typical retail traders. This group includes individuals, who trade on a daily or weekly basis to earn as much money as possible. Many of them study economic and political news, bank statements, statistical releases, and public announcements, which influence the market mostly, to predict the possible future trend in currencies’ price movements. Other traders prefer to rely on technical indicators paying less attention to what is happening in the world of economics and finances. You can also join this club of people with the aim to profit on price fluctuation and dive deep into the network of different financial institutions.
How to Operate on Forex
As it was said before, a broker gives traders access to the Forex market. Brokers are the companies, which connect people and the interbank market where all the trading processes happen. To make a long story short, any person can trade in the markets with the help of the Forex broker.
Brokers provide services for secure and safe trading and software programs, where traders are able to see real-time currency quotes as well as place orders for buying or selling positions (currencies) just in a few clicks.
To start a trading career, it is enough to open an account with the Forex broker of your preferences. The spread or commission is the reward for the services of the broker.
How to Choose the Right Forex Broker
A trader should pay attention when choosing a broker on three main parameters — reputation, years of expertise, and regulations. Why are these characteristics reliable? The answer is simple — all of them prove that a broker is trustworthy enough to provide financial services. Reputation is responsible for the goodwill of the company and the general outlook. It assets how friendly and supportive a broker is with the clients. Experience in the market means that a broker is qualified enough to organize the trading process with all its peculiarities. As for regulations, this parameter is aimed to make the workflow transparent and secure for the company and its clients. Licensed brokers guarantee protection for traders and their funds.