星期三 Nov 22 2023 07:44
15 最小
In the vast ocean of financial markets, Forex (foreign exchange) stands out as the most popular choice.
Often when traders think of global markets, it's the currency market that springs to their minds.
Two main reasons make Forex the preferred trading arena for so many day traders.
It’s not only the world’s largest financial market, but it is also available for traders 24/5.
In this guide, we delve into the intrinsic qualities of forex, unveiling why it stands as the go-to choice for those looking to make the most of every trading day.
Let’s get into it.
Forex trading, also known as foreign exchange trading or currency trading, involves buying and selling currencies on the foreign exchange market to make a profit.
The forex market, short for "foreign exchange market," is a decentralised global marketplace where currencies are traded.
It's the largest and most liquid financial market in the world, operating 24 hours a day, five days a week, with participants ranging from central banks and financial institutions to individual retail traders.
Within this market, currencies are exchanged at current or determined prices, facilitating international trade, investments, and monetary policy implementation.
As we mentioned above, the foreign exchange (Forex) market is the world's largest financial market, with over $7 trillion traded daily.
Let's take a deeper look into the primary benefits of trading forex, and to understand why this market is the favoured choice for many.
Liquidity refers to the ease with which assets or securities can be bought or sold in the market without causing a drastic change in their price. Given its vast trading volume, there is always a buyer or seller available, ensuring that traders can enter or exit positions almost instantaneously.
With a vast number of online trading platforms and brokers available, even individual traders with modest capital can start trading. All that's required is a computer or smartphone, an internet connection, and a relatively small amount of capital.
Unlike stock markets which have specific opening and closing times, the forex market operates 24 hours a day, five days a week. This is due to its decentralised nature, with major trading centres located in various time zones around the world, including Tokyo, London, New York, and Sydney. This offers traders flexibility, allowing them to trade at any time it suits them, be it after their day job, in the middle of the night, or during the day.
Offering high leverage means traders can take a large position with a small amount of capital. For example, with leverage of 100:1, a trader can take a position worth $100,000 with just $1,000 in their trading account. However, this does not only magnify potential profits but also potential losses as well, so traders need to take this carefully into consideration.
The forex market includes a large list of currency pairs, each representing the value of one currency relative to another.
This diversity offers traders a myriad of trading opportunities, from major currency pairs like the EUR/USD to more exotic pairs.
Factors influencing one currency pair might be different from another, allowing for a broad spectrum of strategies and trading scenarios.
Most forex brokers earn through the spread, which is the difference between the bid and ask price of a currency pair. In comparison to other markets, transaction costs in the Forex market are relatively low, especially when trading major currency pairs.
The forex market operates over the counter (OTC), meaning there's no centralised exchange like there is for stocks. This decentralised nature provides traders with the flexibility to trade directly with other participants in the market, whether they are banks, financial institutions, or individual traders.
To understand the complete structure and functioning of the forex market, it's essential to recognize its different types or segments. Here are the primary types of forex markets:
The spot market is where currencies are bought and sold based on their current price. It is the most straightforward type of forex market and is what most people refer to when they talk about forex trading. Transactions in the spot market are settled "on the spot," meaning trades are delivered within two business days.
In the forward market, contracts are bought and sold over the counter between two parties, who determine the terms of the agreement between themselves. They decide upon the contract's size, settlement date, and exchange rate.
Unlike the spot market, the forward market doesn't require immediate settlement. Instead, the transaction is settled at a specific date in the future, which can be days, months, or even years later, as per the agreement.
The futures market is similar to the forward market, but there's a significant difference: futures contracts are traded on exchanges, not over-the-counter. This means the contracts come in a standardised format.
As a result, they are more transparent and are available to individual traders. Unlike forward contracts, futures contracts are legally binding to all parties involved.
Currency swaps involve the exchange of one currency for another at a predetermined rate and a future date. This market mainly caters to banks and financial institutions, allowing them to manage their liquidity needs and hedge against currency risks over longer periods.
In the forex options market, traders can purchase the right, but not the obligation, to buy or sell a currency pair at a set price on or before a specific date.
There are two primary types of options: call options (which give the holder the right to buy) and put options (which give the holder the right to sell). Forex options trading can be used for speculative purposes or to hedge against potential losses in other trades.
Here is a list of essential forex terminology that every trader and enthusiast should be familiar with:
Starting your forex trading journey should not be hard if you follow these essential steps:
When you engage in traditional forex trading, you're essentially buying one currency while selling another at the current exchange rate.
You're expecting the bought currency to appreciate relative to the one you sold. This type of trading is typically done in the spot market, where transactions are settled "on the spot" or within a short period.
CFD trading, on the other hand, does not involve the direct exchange of currencies. Instead, traders enter into a contract with a broker, agreeing to exchange the difference in the value of a currency pair between the time the position is opened and when it is closed.
You're not buying or selling the actual currency, but instead speculating on its price movement. CFDs are typically leveraged products, meaning you only need to deposit a small percentage of the full value of your position, leading to magnified profits or losses.
Read also this interesting article: The ultimate guide to opening a Forex CFDs trading account
Forex offers unparalleled opportunities due to its expansive market and unique benefits.
Whether you're navigating through the diverse types of forex markets or understanding essential terminologies, a deep knowledge of forex is indispensable.
As with any trading venture, starting in forex requires a systematic approach and understanding the nuances, such as the difference between traditional Forex trading and Forex CFDs.
For those keen to explore the dynamic world of Forex CFD trading, markets.com is a trusted platform to kickstart your journey.
Dive into the world of forex today and harness its vast potential for your trading aspirations.
Catch up on this related article as well: 10 tips on how to trade CFDs on forex for beginners
“When considering foreign currency (forex) for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.”