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What is Forex and how can we trade?

The foreign exchange market (currency, Forex or FX) currency trades. It enables banks and other institutions easy to buy and sell currencies.

The objective of the foreign exchange market is to help trade and investment. A foreign exchange market helps companies convert one currency to another. For example, authorizing a U.S. business to import European goods and pay euros, despite the company's revenue is in U.S. dollars.

In a typical Forex trading, a party purchasing a quantity of currency by the payment of an amount of another currency. The modern Forex market began to form during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as the Bretton Woods system.

The market is unique because:

– Forex trading volumes,

– The extreme liquidity of the forex market

– Forex geographical dispersion,

– Long Forex trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday to Friday 22:00 UTC)

– The diversity of factors affecting currency exchange rates Forex.

– Low profit margins compared to other fixed income markets (but profits can be high due to very large trading volumes)

– The use of leverage by Forex brokers

– Forex markets trend well when liquidity is good.

As such, the currency has been named as the market closest to the ideal of perfect competition, notwithstanding market manipulation by central banks. According to the bank for International Settlements, average daily turnover in global foreign exchange markets is estimated at $ 3,980,000,000,000. Trade in major world financial markets accounted for $ 3,210,000,000,000 of it. This approximately $ 3,210,000,000,000 turnover main market currency was broken down as follows:

– 1.005 trillion U.S. dollars in the spot transactions

– 362 billion U.S. dollars in forwards total

– $ 1,714,000,000,000 in foreign exchange swaps

– Estimated 129 billion U.S. dollars in the information gaps

There a unified market or delete centrally for most currency trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) the nature of currency markets, there are rather a number of interconnected markets, where instruments are traded currencies.

This implies that no there is a single exchange rate, but rather a number of different types (prices), depending on what bank or market maker is trading, and where it is. In practice, the rates are often very close, otherwise it could be exploited by referees instantly. Because London's dominant position in the market, market price of a particular currency is the currency market price of London. A joint venture of the Chicago mercantile Exchange and Reuters, called Fxmarketspace Opened in 2007, but did not aspire to the role of a mechanism for balancing the central market.

The main Forex trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers. Banks around the world participate. the currency exchange operations are repeated continuously throughout the day, including the Asian trading session ends, the European session and London Open start, followed by U.S. Open / North American session and then return to the meeting Asia, excluding weekends.

The fluctuations in forex rates are usually caused by actual monetary flows as well as expectations of changes in the cash flows generated by changes in gross domestic product (GDP), inflation (purchasing power parity theory) interest rates (parity interest rates, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M A deals and other conditions macroeconomic. Top News of the currency is launched publicly, often on scheduled dates, so many people have access to the same news at the same time. However, large banks have an important advantage because they can observe the flow of customer order.

Currencies are traded among themselves. Each pair of currencies Forex therefore constitutes an individual product and is traditionally observed XXXYYY or YYY / XXX, where YYY is the ISO 4217 international code of three letters of the currency in which the price of one unit of XXX is expressed (called base currency). For example, EUR / USD or USD / EUR is the price of the euro expressed in U.S. dollars, as in 1 euro = 1.5465 U.S. dollars. Outside the convention, the first currency in the pair, the "base" currency, was the strongest currency in the creation of a currency pair. The second coin, currency or "Term currency" was the weakest currency in the creation of the couple. The coins are occasionally misquoted invested with peers eg EUR / USD, but this is incorrect. The "/" acts as the division operator is derived from mathematics and the real exchange rate. For example, a quantity of 140,000 U.S. dollars equivalent to € 100,000. $ 140,000 / € 100,000 = $ / € = USD / EUR = a rate of 1.4 therefore EUR / USD or USD EUR /.

The factors affecting XXXYYY affect both XXX and XXXZZZ. This makes the positive correlation between the currency and XXXZZZ XXXYYY.

In the spot market currency, according to BIS study, the strongest products on the market were:

– EUR / USD: 27%

– USD / JPY: 13%

– GBP / USD (also called Sterling or Cable): 12%

The U.S. currency was involved in 86.3% of currency transactions, followed by the euro (37.0%) yen (17.0%) and Sterling (15.0%). Note that volume percentages should add up to 200%: 100% for all sellers and 100% for all buyers.

exchange transactions in the euro has grown considerably since its inception of the currency in January 1999, and for how long the Forex market will remain dollar-centered is open to debate. Until recently, trade in the Euro versus a non-European currency ZZZ would have usually involved two trades: EUR / USD and USDZZZ. The exception to this is EUR / JPY, which is an established traded currency pair in the interbank spot forex market. As the dollar's value has eroded during 2008, interest in using the euro as the reference currency for prices in commodities (like oil) and a larger component of foreign exchange reserves of banks, has increased dramatically. Transactions in the currencies of commodity producing countries such as AUD, NZD, CAD, have also increased.

The cash transaction Forex is a supply of two days (except in the case of trade between the U.S. Dollar, Canadian Dollar, Turkish Lira and the Russian ruble, to solve the next business day), unlike futures contracts, typically three months. This trade represents a "direct exchange" between two currencies, has the shortest, is in cash rather than a contract, and interest is not included in the agreement, transaction time. Data for this study come from spot foreign exchange market. Spot Forex trading turnover are the second largest in volume after exchange operations between all Forex transactions Forex global market.

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