The Forex market allows major organizations, governments, retail traders to exchange one currency for another, and the so-called “interbank market”, where liquidity providers trade among themselves, is the “core” of the FX market.
The ability to trade currencies around the clock is one of the advantages of entering the Forex market. Before turning over to the US, the European and UK institutions come online as the Asian trading day draws to a conclusion. When the US session closes and the Asian session begins the next day, the trading day is complete.
The supply of liquidity 24 hours a day, 7 days a week makes this market even more appealing to traders. Because there are so many willing buyers and sellers of foreign exchange, traders can quickly open and close positions.
Some of the advantages of Forex over other markets are:
- Low transaction costs: Forex brokers typically profit from the spread as long as the trade is opened and concluded before any overnight funding fees are imposed. As a result, when compared to a market like equities, where a commission is charged, forex trading is more cost-effective.
- Low spreads: Due to their liquidity, major FX pairs have extremely low bid/ask spreads. When it comes to trading, the spread is the first obstacle to overcome when the market moves in your favor. Any extra pips that go in your favor are pure profit.
- More profit opportunities: Forex trading allows traders to speculate on currencies rising and falling. Furthermore, traders have a wide range of Forex pairs to choose from when looking for better trades.
- Leverage trading: Leverage used in Forex indicates that a trader does not have to pay the full cost of the trade, but only a portion of it: a solid chance to increase final profits.
Though constant currencies’ volatility may seem as something wary and unreliable, you’d be glad to know that this market is actually one of the safest to trade on thanks to the number of heavily regulated Forex brokers. There are ones that hold multiple licenses from the strictest financial authorities around the world: FCA and CySEC (European Economic Union), ASIC (Australia), MAS (Singapore), FSA (Japan) and several overs.
Moreover, these brokers often support Social trading (ability to automatically copy moves of expert traders, earning passive income and learning from the best at the same time), which you can fund with Forex bonuses (though they are a subject to geographical availability). With some of these brokers you can get up to $5000 on your initial account top up, get seasonal or other deposit bonuses, and try out new trading platforms without risking your own money.
How does Forex market work?
Forex trading, unlike stock or commodity trading, takes place directly between two parties in an OTC market. The currency market is controlled by a global network of banks based in London, New York, Sydney, and Tokyo, which are all located in separate time zones. You can trade Forex 24 hours a day because there is no central place.
The FX market is divided into three categories:
- Forward Forex market – A contract to purchase or sell a defined amount of a currency at a given price, to be settled at a future date or within a range of future dates.
- Futures Forex market – A contract to purchase or sell a specific amount of a given currency at a specific price and date in the future. A futures contract, unlike a forwards deal, is legally binding.
- Spot Forex market – The physical exchange of a currency pair that occurs at the precise moment the trade is settled – i.e. “on the spot” – or within a short period of time.
Most Forex brokers divide currency pairings into the following categories to keep things organized:
- Major pairs: Seven currencies account for 80% of worldwide Forex trade. EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, and AUD/USD are among the most popular currency pairs.
- Minor pairs: These are less commonly traded and often pit major currencies against each other rather than the US dollar. EUR/GBP, EUR/CHF, and GBP/JPY are all included.
- Exotics: A major currency vs a currency from a developing or emerging economy. USD/PLN (US dollar vs. Polish zloty), GBP/MXN (Sterling vs. Mexican peso), EUR/CZK (Euro vs. Czech koruna).
- Pairs from different regions: Region-based pairings, such as Scandinavia and Australasia. EUR/NOK (Euro vs. Norwegian krone), AUD/NZD (Australian dollar vs. New Zealand dollar), and AUD/SGD (Australian dollar vs. Singapore dollar).
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