What is Forex market and how does it work

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Forex is the largest financial market with a daily volume of more than $5 trillion (ten times larger than ALL of the world’s stock markets). In fact, it is a worldwide organization of decentralized financial institutions established in order to carry out foreign exchange currency transactions.

There is no such a system, which would manage quotes, in the Forex market. Exchange rate movement is defined by the following things:

  • demand and supply laws;
  • economic, social and political factors.

Only large banks with sufficient money reserves could participate in the currency market for a long period of time. Growth of credit economy and development of technologies turned the market into a place accessible to every inhabitant of the planet.

 

Forex Market Participants

 

Forex market participants

  • Government central banks
  • Commercial banks
  • Investment banks
  • Brokers and dealers
  • Pension/Investment funds
  • Insurance companies
  • International corporations
  • Individuals/retail traders

Forex trading benefits

Among the major benefits of trading in the Forex market are:

  • No need to buy and store a real commodity or an asset
  • Leverage can be used for speculative transactions
  • Profit can be earned both on increase and decrease in asset prices
  • Possibility to purchase and sell an asset immediately (with a single click)
  • Possibility to monitor price changes in a real-time mode
  • Possibility to make transactions almost around the clock and from anywhere in the world (via Internet)
  • Decentralization, which excludes a monopoly and an artificial control of flow of quotes
  • Deep liquidity and wide selection of trading instruments
  • Minimum spread (brokerage fee) makes the Forex trading one of the most profitable kind of business activity
  • Possibility to train yourself in the Forex trading on a demo account without any initial investments

The currency market operates around the clock throughout the entire working week (from Monday till Friday). It is due to the fact that the largest financial centers are located in various time zones and are able to replace each other sequentially.

Among shortcomings is increased risk associated with leverage. This means that a trader might face a bankruptcy in the long-run, if he or she cannot control own capital and trade without a strategy and reasonable rules of risk management from the start.

Now you have got to know how the largest financial market of the present time was developing. We shall explore the subject in more details and consider all the important aspects addressing trading in the Forex market in subsequent articles.

Should you have any questions, ask them in the comments below.

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