Wednesday, August 10, 2011

What is Forex Tading

What is Forex Trading? What does Forex means? Forex means Foreign Exchange. Trading Currencies in foreign exchange market is known as Forex Trading. It is one of the most traded financial market in the  world. Most of us are familiar with Stock Market. What it is, what is BSE, NSE etc. etc. But very few of us know what forex trading is.

Like stock market deals with buying and selling of stocks, this forex market deals with buying and selling of currency pairs. By currency pair I, mean to say that you buy or sell or exchange some currency with respect to another. For example Euro versus Dollar and it is represented as EUR/USD. Like stock market is a very good place to invest your money similarly Forex Trading is. The best thing about this market is that it is true 24hour market. It opens on Sunday 10:00 GMT to Friday 10:00 PM GMT. It works for 24 hrs, 5days in a week.

Forex trading is not centralized on an exchange, as stock or future markets. It trades over the counter and is termed as Over The Counter (OTC). By over the counter, I mean to say that every trade either happens on a telephone or through internet. Means each trade happens through some or the other electronic network. In this type of market great risk is involved. There is no one who guarantees your money. But still it is the most traded financial market. Approximately 4trillion $ are daily traded in this market. Through this figure you can have an idea how big it is.

Foreign Exchange is the simultaneously buying of one currency and selling of another. The currencies are always on a floating exchange rate and are always traded in pair like Dollar/Yen, AUD/JPY, EUR/USD etc. Earlier Forex market was dominated by by banks, including central banks, commercial banks, and investment banks.

But as the time passed the percentage of other market participants increased and now it includes global money managers, registered dealers, large multinational corporations, international money brokers, futures and options traders, and individual investors.

Like in equity market the usual margin allowed is 50%, which means the investor has the double the buying power but in forex market the leverage ranges from 1% to 2%. It provides its investors high leverage value needed to trade actively.

This high leverage margin increases the risk associated with Forex trading. Leverage allows you to use OPM (Other Peoples Money) then a high leverage places you in a riskier position. Higher the leverage margin, higher the risk.

There is almost 15 main currencies in which forex trading is done. 10 most traded currencies are: US Dollar(USD) , Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Swiss Franc (CHF), Australian Dollar (AUD), Canadian Dollar (CAD), Swedish Krone (SEK), Hong Kong Dollar (HKD), New Zealand Dollar (NZD) Norwegian Krone (NOK). We all know very well till now that currencies are traded in pair. Most traded currencies pair include:- EUR/USD, USD/CAD, EUR/JPY, EUR/CHF, USD/CHF, EUR/GBP, GBP/USD, AUD/CAD, NZD/USD, GBP/CHF, AUD/USD, GBP/JPY, USD/JPY, CHF/JPY, EUR/CAD, AUD/JPY, EUR/AUD, AUD/NZD.

Anyone can do Forex trading easily through any Forex trading broker, through banks or directly through Internet. This has become one of the easiest way to earn online money but it does includes high risk due to high leverage value and OTC.

Like in stock market there comes number of news before hand only that can affect the market and according to it investors can invest there precious money in the stock market. But in FX market there is no such prior news. Sometimes there is global release of some news. Investors have to decide themselves what trade they want to do.

There are number of factors that affect FX rates. They could be marketplace psychology, economic conditions like Inflation levels and trends, Economic growth and health, Government budget deficits or surpluses or Internal, regional, and international political conditions.

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    This is a personal blog about money making ideas and related topics. There might be inaccuracies and the author takes no responsibility of any damage occurring due to the same. The articles posted are my personal opinions that I have gathered over the time span. My opinions are liable to change as I become more educated over the time period. No decision should be made on the basis of the articles of this blog. The author does not accept any responsibility for any damage or inconvenience caused due to the articles and opinions expressed in this blog. The readers are advised to make there research from proper sources before making any investment decision.