Forex 101 - Introduction to Foreign Exchange
Foreign Exchange is an international financial market place where money is sold and bought freely. It is a non-stop cash market where you speculate on changes in exchange rates of foreign currencies. Forex operates through a global network of banks, corporations and individuals trading one currency for another but has no physical location and no central exchange not just like other financial markets.
The Forex market spans from one zone to another in all major financial centers on a 24- hour basis since it has no physical exchange. Since there is no centralized exchange for currencies to be sold or bought, forex is considered to be an over- the counter market or what is called OTC. Banks and forex dealers are connected around the world via internet, fax and telephone to form the Forex market. Read through this article, introduction to forex, in order to know more about forex trading as well as its purpose and many more. Learning forex enables us to know some forex terms, codes, numbers and definitions. Forex trading 101 or the introduction to forex trading will enable us to know how forex works and how to make money with currency trading on forex.
The foreign exchange market began in the 1970's when free exchange rates and floating currencies were introduced. Before retail investors can access the foreign exchange market through banks that transacted large amounts of currencies for commercial and investment purposes. After exchange rates were allowed to float freely in 1971, trading volume has increased rapidly over period of time. Now the Foreign Exchange Market that we see made importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all use the Forex market in order to pay for goods and services, transact in financial assets or to reduce the risk of currency movements by hedging their exposure in other markets.
The Forex market has the following characteristics: First, Forex is a very liquid market because there are always ready and willing buyers and sellers for the currency you want to trade. With this characteristic it gives us the ability to quickly buy or sell a particular item. Second, Forex is a large trading volume with a daily average of $1.9 trillion in April 2004 (source: BIS study Triennial Central Bank Survey 2004). Third, Forex is open 24 hours worldwide with major trading centers in London, New York, and Tokyo and made traders access the market any time and act on global developments. Lastly, Forex has lower transaction cost. Traders only pay a spread and a broker’s commission ranging from $20-$120 depending on the volume of the trade. It also allows traders to deal directly with the market maker paying only the spread and the price at which a market maker will buy from a customer.
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