The Forex Market is an abbreviation for the Foreign Exchange Market. It is a global marketplace where you can trade currencies of different countries. The Forex market deals with a huge amount of currency exchanges. It is open twenty-four hours a day, five days a week. This allows you to trade more and at your own convenience.
Trading Centers of the Forex Market: There is no specific central location for trading. Large Trading centers are in Tokyo, New York, Hong Kong, Singapore, London, Paris and Frankfurt. All the trading transactions are done over the internet or by telephone. There are 5000 trading institutions in Forex trading. These institutions are central government banks, international banks, and companies and broker that working with all types of foreign currency exchange. The Forex market is also available to the small investor. It has just as much profit and financial gain for an individual as it does for a company. There are no financial regulations or minimum transaction amounts. With internet trading, anyone can trade and with investment as little as $100 to begin.
Which currencies are traded on the Forex Market?
The majority of trade is carried out in the seven most liquid currency pairs in the world. The four major currencies are:
EUR/USD (euro/dollar)
USD/JPY (dollar/Japanese yen)
GBP/USD (British pound/dollar)
USD/CHF (dollar/Swiss franc)
The three commodity pairs are:
AUD/USD (Australian dollar/dollar)
USD/CAD (dollar/Canadian dollar)
NZD/USD (New Zealand dollar/dollar)
These currency combinations account for 95% of forex trading.
Working of the Forex Market: All currencies are traded in pairs that is Japanese yen and US dollars, or euros and English pounds. Each transaction includes selling one currency then buying another. For example, if you think that the English pound was going to do better than the dollar, you would sell your dollars and buy pounds instead. There is always movement and fluctuations between currencies. There is a huge amount of money involved in each transaction which is why you can make great profits from even the slightest rise or fall.
Unlike the trading of stocks, currency trading is not controlled by any central governing body. Nor are there are any clearing houses to guarantee the trades. Members trade with each other based upon credit agreements. The Forex market is a speculative market. There is no physical exchange of currencies. All trades exist only as computer entries. Because currencies always trade in pairs, when a trader makes a trade he or she is always long one currency and short the other.
Calculation of of Forex risks: FOREX involves a certain amount of calculated risk. Two ways to calculate these risks are though Technical Analysis and Fundamental Analysis.
Technical Analysis: When a certain currency is very strong and seems to be rising at a normal rate, the investor will suppose that the currency will not decline in value, and will continue to rise, as it has done in the past. The investor will then purchase a large amount of that currency with the expectation of making a profit.
Fundamental Analysis: Investors using this technique look at the situation of the country in which the currency finds its base. Factors such as the countries economic status and political status are considered.
source folsol.com