What is Forex Trading?
The foreign exchange market (forex, FX, or currency market) is a worldwide, decentralised, over-the-counter financial market for trading currencies. It is the largest financial market in the world with a volume of over $5.3 trillion a day worldwide. Total forex trading volume is well over three times the total of the stocks and futures markets combined.
With Pepperstone, you will have direct access to the forex ‘spot’ market - a market that deals in the current price of a financial instrument.
History of Forex
Traditionally, retail investors' only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. Today, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all use the FOREX market to pay for goods and services, transact in financial assets or to reduce the risk of currency movements by hedging their exposure in other markets.
There is no central marketplace for currency exchange; trade is conducted over the counter. The forex market is open 24 hours a day, five days a week and currencies are traded worldwide among the major financial centers of London, New York, Tokyo, Zürich, Frankfurt, Hong Kong, Singapore, Paris and Sydney.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Large corporations trade on the FX market to control revenues and expenses incurred in various currencies through hedging whereby a trade or multiple trades are opened in order to try and minimize on the losses in other trades.
Investors trade currencies for profit. Most forex trading is speculative by analyzing market and political news (fundamental analysis) and/or studying the chart history of an instrument (technical analysis). Unlike other asset markets, in forex it is possible to profit from a currency losing value as it is from the currency rising in value.
Advantages of the Forex Market
- Forex investing offers some of the best reward/risk opportunities of any financial market
- Forex market hours are the most flexible of any financial market
- Massive trading volume, resulting in a high level of liquidity (the ability of a market to accept large transactions)
- No-one can corner the market
- Forex trading has among the lowest start-up costs in terms of money and time, of any financial market
- Traders can profit from the smallest movements in the exchange rate through the use of leverage
- Traders can earn steady income on open positions through rollovers/swaps
- Free “Demo” Accounts, News, Charts, and Analysis
- “Mini” and “Micro” trading through the Meta-Trader 4 trading platform
Risks of Trading FX
The increased amount of leverage means that traders can lose all, or a large portion, of their trading capital if the market makes a significant move against the trader’s current open position/s. Therefore, margin FX is a high risk product and may not be suitable for all investors as traders can lose more than their initial investment amount.
Which Currencies are Traded?
There are many currencies and combinations of currency pairs that are traded on the market. Here is a list of the major currency pairs:
|USD||United States||Dollar||Buck, Greenback, Reserve Currency|
|EUR||Euro members||Euro||Fiber, Unified Currency|