The foreign exchange market is a decentralized, over-the-counter (OTC) global market. The daily volume of the Forex market surpasses $4 trillion a day worldwide. To put this in perspective the daily volume traded on the New York stock exchange is $25 billion making it the largest financial market in the world. The total Forex volume is well over three times the total amount of the stocks and futures markets combined.To get more news about nova tech fx, you can visit wikifx.com official website.
The participants of the Forex market include banks, corporations, institutional investors, hedge funds and individuals. In simple terms Forex trading is where you can buy and sell currencies, simultaneously. The way it works is much like the process of currency exchange at airports or hotels where you can exchange the currency you deal with for the local currency. The Forex market is open 24 hours a day 5 days a week, enabling traders to buy and sell around the clock acting on global news events as they happen.
History of the Forex Market
Foreign exchanges markets we first developed to facilitate cross border trade conducted in different currencies by government, companies and individuals. In the early days the foreign exchange markets primarily existed to facilitate the international movement of money, however even in the early days there were speculators.
These days a large portion of the Forex market is driven by speculation, arbitrage and professional dealing. In the past retail investors could only gain access to the foreign exchange market through banks that transact large amounts or currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971.
Throughout the 80s and 90s access to the Forex market was limited to banks, funds, commodity trading advisers (CTAs) managing large sums of money, large corporations and big investors. Access was afforded to this group as they were able to meet the strict credit guidelines established by banks that smaller investors were unable to meet.
As the Forex market grew, it gained increasing recognition as a means for individuals to speculate in global markets and in the early 2000’s the online Forex trading market was born. Online Forex brokers establish the ‘line of credit’ with a bank, otherwise known as a prime brokerage agreement. This negates the need for individuals to have the deep pockets previously required for individuals to trade in the Forex market.
It has gained significantly in popularity since the global financial crisis as investors seek ways to diversify their portfolios and generate returns not correlated with traditional markets such as equities and real estate. Investors are drawn to the high volatility of the Forex market, benefiting from the ability to go long or short, generating leveraged returns in rising and falling market.
How does Forex Trading work?
Forex trading is similar to trading share or futures except that when trading Forex you are buying or selling one currency against another. One of the key advantage Forex trading has over other financial instruments is that relatively small lot sizes can be traded, lot sizes can be as small as 1000 units or one micro lot. Typically Forex trading also involves leverage which in some cases can be as high as 1:500, this is very different to trading shares where no leverage is involved. Leverage allows traders to trade with more money than they actually have in their trading account, for example if you had 1:100 leverage you could use a $1,000 deposit to control $100,000 worth of currency. Using leverage can result in an increase in you gains however if not used correctly it can also result in increased losses.
