The foreign exchange market, also known as Forex, is the market where one currency is exchanged for another. The Forex market is one of the most profitable and liquid markets of our time where a large number of daily transactions exceeds the total daily turnover of any other market. The market operates 24 hours per day, 5 days a week, generating a turnover of 3 trillion dollars per day. It’s impressive!
Forex trading comes in many forms, and there are many motives for it to take place. This can be for international trade such as imports or exports of goods and services across international borders, for the purchase of foreign assets, real estate, equity as well as other financial purposes.
A great deal of business is for the use of hedging commercial trade transactions. Just as in regular markets were fruit are being bought and sold, the same happens in the stock market, but instead, we buy and sell stocks. The only difference in the Forex market is that we buy and sell currencies, as this is our product.
There are more than 100 currency pairs that can be freely traded without any restrictions throughout the whole world. Let’s say as an example that the exchange rate of the GBP in relation to the Euro is at a given price (1.225) in London and should be the same in other countries around the world.
- The Forex market operates on a global scale, making it very difficult to manipulate.
- A trader can manage to minimize losses and risks by using appropriate trade management such as Stop Loss Orders.
- The Forex market is considered the most liquid market in the world, implying that investments can be converted into cash quickly.
- Investors have the option to choose and trade from a wide range of investment opportunities.
- Gaining access to the markets is very easy through brokers. Chose a broker – open an account – deposit and start trading.
- The market operates 24 hours a day, five days a week (Monday-Friday).
- The market has no physical location, and all transactions are done electronically. The only equipment needed is a computer with access to the internet.
- No matter in what state is the economy of a country, there will always be rising and falling currencies, providing the opportunity to generate profits.
What affects the forex market
The Forex market is affected exclusively by the Macroeconomic data and not by the Microeconomic data.
- The growth of interest rates
- The unemployment rate
- National political conflicts
- Gross Domestic Product (GDP)
- Consumer Price Index
- Employment Indicators
- Retail Sales
- Balance of Payments
- Government Fiscal and Monetary policy