What is Forex Trading?
Forex Trading, or in other terms Forex market is the international market of exchange of foreign currencies. This is the forum where the traders from all over the globe participate in the currency exchange process i.e. buying and selling of the stable currencies and then earning profits accordingly. Those currencies are traded in this forum which has high liquidity and a stable value in the markets, so as to aid up in the process of the entire transaction. This article discusses further on this form of trading and mention about some of its important aspects, including the various forex veikimas i.e. the factors that control the market.
How does it work?
Forex is the market where trading is done on the different currencies, rather than the commodities or assets which are the basis of the other trading platforms. These currencies are the market indicators and hence determine the health and stability of the current market conditions accordingly. The working policy of Forex is in line with the concept of supply and demand. In other terms, when a currency is bought it leads to higher demand in the market and hence an increase in the price of the same. Similarly, when the same is sold the supply increases and accordingly the prices fall. On a mathematical model, the overall effect of each buying and selling transaction on the currency market is directly proportional to the volume of trading of each transaction. This is one of the factors over which the current global market is running.
The overall working of the platform requires a stable internet connection, as a result of which the direct exchange of the financial assets can be done between two parties easily. Even governments, major banks, investment companies and other giant figures involve in this form of trading and earn huge sums of profits. As per the currency pair, the valuations are set and the price of the day is decided.
Advantages of Forex Platform
The following are the advantages of this platform that have aided in its widespread use these days: –
- Flexibility in terms of the maximum amount that can be traded per day, since there is no such restriction over the same and also over the time of operating, as the platform stays live for 24/7 hours and hence anyone can participate easily at any time as per their convenience.
- A large number of trading options available as different currency pairs are present and the transactions can be done conveniently on the basis of the most stable pair which has lesser chances of risks and more returns in terms of profits.
- Lesser transaction costs, which also includes nearly zero commission charges and very low other hidden charges. This ensures that all sections of people can invest easily in the platform and earn profits accordingly.
- Providing the highest leverage in the market on financial matters and hence magnifying the overall profit and loss figures easily.
Disadvantages of Forex platform
The following are some of the cons of this forum: –
- Difficulties in creating the rules and regulations as different countries participate in the same and hence the administration becomes quite tough. Hence, it sometimes increases the risk of transactions carried out.
- Along with the maximum leverage, more leverage risks are also offered that can turn the tides against the trader once the market condition turns against him or her and hence leading to huge losses.
- Operational risks in terms of crashing of the platform sometimes when the traffic gets higher or it goes for an upgrade.
The major players in the field
The major players of the platform include central banks, countries, hedge banks, investment banks, brokers, personal and professional investors to name a few. These players are categorised separately on the basis of the influence that they exert over the market and are named as largest fish, medium sized fishes and small fishes respectively. Majority of these participants have a direct access to the interbank FX market and hence can trade currencies directly without any intermediaries.
The popular currencies that are traded
Those currencies are preferred over this forum, which has a high liquidity to aid in the easier transaction and a stable value in the market such that investing in the same would earn huge profit returns. Accordingly, the popular currencies include US Dollar, Euros, Pound Sterling, Yen and Swiss Franc. The other currencies that are often traded for include New Zealand Dollars, Australian Dollars and Canadian Dollars.
The factors affecting
The various forex veikimas that affect the overall trading condition of the platform include the following: –
- Interest rates that vary from one country to another
- Inflation in the prices of the individual currency that changes daily as per the Sensex and market conditions
- Political, social and other internal factors of the nation
- The growth rate of the economy
- Supply and Demand of the nation that also defines the current currency exchange rate
These are the critical factors, the culmination of which decide the performance of the platform in overall.
Why should one invest in Forex?
One should invest in Forex primarily due to the following reasons: –
- Open for 24/7 hours and hence one can participate and invest easily at any point in time
- A highly liquid market that can provide with best of deals and profits
- Lower fees and costs
- Presence of well-defined and detailed Forex analysis methods that can provide well with the requisite data of the currency stats, the market conditions and exact profit and loss statement for individual currency.
- Proper stratification of the factors that determine the overall performance and hence aiding in taking the best of the decisions.
- The platform is compatible with newbies also and aiding them in learning easily.
On a concluding note, the entire platform of Forex is a growing one with better chances of earning higher profits. But, all it asks for is a strong knowledge on the marketing concepts that can aid in taking the optimal decisions.