The foreign exchange market, Forex for short, is a fast-paced financial market that is open for 24 hours a day, five days a week except weekends. Compared with other markets, Forex trading transactions are largely done over the counter where brokers and dealers negotiate directly with one another.
In the past, only big banking institutions and companies can participate in the foreign exchange market. Nowadays however, anyone who has a computer and a stable Internet connection can speculate in the market. With wide global dispersion coupled with a non-stop operation except on weekends, the liquidity inherent to Forex trading is unsurpassed even by the stock market. And experts estimate that the spot foreign exchange market alone sees approximately 1.5 trillion dollars worth of trade.
There are three ways in which Forex trading is carried out: spot, forwards, and futures market. Nowadays, when people say Forex market, they are more often than not referring to spot market. Spot market at its most fundamental is buying and selling currencies according to existing prices. The exchange rates between two currencies are influenced by a host of factors, the economic performance and political situation of their country of origin being some of them.
Forwards and futures markets on the other hand do not trade actual currencies, but contracts. The difference between the two is that forward contracts are non-standard meaning the two parties determine the terms of the agreement between themselves. Futures contracts on the other hand, are standardized in terms of the size of the contract and maturity.
Currency traders work with 2 schools of thought to analyze the Forex market. First of which is Fundamental analysis which takes into account economic data and political events that come from the currency’s country of origin. In contrast, the main premise of technical analysis is that one can determine future price actions by reviewing past price actions and trading volumes. Those who adhere to the technical analysis school of thought rely heavily on price charts, and as such are often called chartists. One would probably ask which security analysis principle is better. Each principle has its own merits. Having said that, to be successful in Forex trading, it you need to be knowledgeable about the two principles. People who employ fundamental analysis concomitantly with technical analysis are able to review broad market themes and identify when to enter and exit a trade to take advantage of favorable price shifts and mitigate losses.
Forex trading is a financial market with global dispersion and unmatched liquidity. The great thing is you can participate in this market, provided you understand its inner workings. Follow this link to find Forex tutorials.