The Currency Exchange Market of the Future – FOREX
Forex (or also called foreign exchange market) represents one of the largest markets and assets worldwide. It is positioned as such because it is able to process daily large amounts of operations that approach 5 trillion dollars, being the most liquid market so far. This market consists of decentralized commercial activities, which allow exchanging one currency for another at a stipulated value.
In addition to offering operations with great exchange speed, commissions are low and do not require supervision. Forex works just like an OTC (Over the Counter) market, which is made up of an electronic network where users can trade:
- Or any asset
Additionally, such operations are carried out between brokers and/or banks
The foreign exchange market arose from the need to facilitate and improve the monetary flow coming from international commerce, thus achieving the proposed objective, since they have reached the daily movements of Wall Street transactions and in record time, because what Wall Street achieves in a month, Forex achieves in a day.
Each trading center has its opening and closing hours. This allows greater organization and permanent access to any market. This produces greater liquidity and allows to act quickly before any political or economic event that may be detrimental.
There are many characteristics that define the Forex market, however, the main ones will be mentioned below:
- It has 24 hours access, but has limitation of use on weekends. However, users can decide and impose their buy or sell position and the same will be displayed when the market starts.
- As it is a decentralized market, there is no single quotation.
- There are fluctuations when changes are made (due to expectations regarding economic variables, such as inflation, GDP, deficit, among others).
- Relevant events are published on stipulated dates, so users have access to them in real time.
- Recognized banks have the advantage of visualizing their clients’ order books.
- The type of negotiation is in cross. This means that when a currency crosses, an independent product is constituted and denominated as XXX/YYYY, where XXX is the price of a unit and YYY is the international code ISO 4217.
- The U.S. dollar represents 87% of transactions.
What are the Main Figures of Forex?
Among the main actors or figures that have had a high impact on this project, we have:
- Financial institutions: they are in charge of speculation, hedging or acting through a client. International transactions, transfers and/or purchases, lead to the foreign exchange market to be able to buy and sell them and thus execute the operation.
- Trading companies: it is important to note that companies that are not part of the financial sector but that operate with international users and suppliers, also make up the market, having a short-term impact. Also, these flows are important for the development of a currency, as well as may or may not affect the behavior of some multinationals according to the exchange rate of the currency in some countries.
- Central banks: in order to maintain and control the monetary cone, inflation and any change that may have a negative effect, they work in foreign currency markets. They are in charge of fixing an exchange rate, even using national reserves to seek stabilization. When it is speculated that a central bank will be intervened, the economy will be affected, however, they do not always reach their goals and the market may impose itself on them.
- Individual investors with the use of intermediaries: companies have been created focused on providing management services in the forex market, automation systems and funds for investors. Lacking a central location, this market operates as a global digital network of banking institutions, in order to buy or sell currencies.
- Investment fund management companies: they operate to provide access to financial markets in other countries, allowing investment in stocks, bonds, etc., by the participants of their funds.
How does Forex Trading work?
As it is already known, trading consists of exchanging one product for another by means of an instrument such as: forex, cryptocurrencies, stocks, etc. As it has also been explained, Forex is a market in which currencies are exchanged, as well as other financial elements.
Based on this, forex trading represents the activity of buying and selling currencies by speculating on whether or not to increase the price of pairs. This is accessible to anyone who has an intelligent computer and the Internet.
Forex trading is carried out on a daily basis on an international scale, in addition, it is carried out on computer networks, which is why it is positioned as a liquid market and one of the largest in the world.
The logic of forex trading is to carry out the pertinent study so that the trader can decide at what moment he can buy and at what moment the asset will go down in value in order to sell. The profit will always depend on the amount that the trader invests, logically the more the trader invests, the higher the profit.
About the CFDs
CFDs offer the possibility of investing and withdrawing profitability when the trend of the instrument projects a fall. Therefore, it is important to have the following concepts clear:
- Currency pair: representation of the selling and buying price of the currency to be exchanged, i.e., if the representation is as follows: EUR/USD 1.4/1.6, the trader will be able to buy 1 euro at 1.6 US dollars and sell 1 euro for 1.4 US dollars.
- Buy order: when the order is generated, a part of the trader’s funds in the account is used to obtain the base currency of the pair and offer to sell the quoted currency of the pair, hoping that it will increase and make a profit.
Why Should I Know about This Market?
In the last 20 years, this project has gained great fame and has been used by multiple users and the reasons are as follows:
- Easy access. Unlike other markets, with a deposit of a low amount you can trade.
- Volatility. As explained above, the objective is to obtain an asset at a low price and then resell it and make a profit. Therefore, when the market is more volatile, there will be more possibilities to acquire and sell assets.
- Supply and demand. As long as the market is operating under normal conditions, users will be able to execute orders quickly, due to the existence of market liquidity and demand.
- Advanced technology. This is a favorable feature, because of the great competition, forex has been obliged to continuously improve in order to stand out and attract more clients.
- Advancement in the community. There are large amounts of photos on forex trading in multiple languages for traders.
- Possibility of learning through demo accounts. There is the possibility of acquiring knowledge through free demo accounts and thus advancing in the forex market.