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Introduction To What is Forex Trading

What is Forex Market

The Forex Market is where various market participants exchange foreign currencies so as to facilitate international trade and business. These market participants include banks, governments, multinational companies, hedge funds, investors, traders and speculators. All these participants carry out currency exchange activities for their own particular reasons, for governments it is to facilitate internal trade, for banks it is to carry out exchange on behalf of their customers while for speculators, investors and traders carry out currency exchange activities in order to make profits from the currency movements.

The Forex Market also referred to as Forex Market, Currency Exchange Market or Forex transacts a daily turnover trading volume of $7.2 trillion dollars. This makes this market the most liquid financial market in the world. The forex market is open 24 hours a day, 5 and a half days a week. The forex market is also an OTC market, Over The Counter Market which means there is no centralized exchange market place unlike the stock exchange market which has a central stock exchange. Forex has no central exchange and all transactions are carried out through a network of big international banks known as the interbank network.

Who Trades The Forex Market

1.Governments

Governments trade Forex so as to facilitate payment of goods and services brought from other foreign countries.

2.Central Banks

Central Banks trade Forex in order to try and control money supply of a currency, inflation of a currency and also the interest rates of a currency. Central banks may also use their substantial forex reserves to intervene in the market when trying to stabilize their currency against other foreign currencies.

3.Banks

Banks carry out exchange for the main purpose of settling commercial transactions. Banks also exchange currencies on behalf of their customers. Banks may also trade currencies for speculative purposes.

4.Hedge Funds

Hedge Funds trade currencies for speculative purposes. Hedge funds may also participate in forex trading in order to hedge their trades in the Futures market. Hedge funds carry out investment on behalf of their customers and may invest part of their portfolio in the currency exchange market.

5.Retail Forex Brokers

Retail forex brokers place currency trades in the forex market on behalf of their retail traders.

6.Retail Traders and Speculators

95% of all trading activity in the forex market is carried out by speculators and traders who place trades with the motive of making profits from the currency moves.

Retail traders use Forex trading platforms provided by their brokers to lace trades on the currency exchange market.

Advantages of Trading the Forex Market

1.Forex is the largest financial market in the world with a daily turnover of $7.2 trillion dollars and therefore meaning there are many speculators and traders participating in the market making it easy for traders to open and close trades at any time of the day when trading the Forex Market. The large number of trading volumes also means that transaction costs in the Forex are also low.

2.The Forex Market is open 24 hours, 5 and a half days of the week meaning a trader has the freedom to trade currencies whenever they want whether day or night.

3.Ease of Access to the forex market - traders only need a computer that has an internet connection and can trade Forex currencies from anywhere in the world. The minimum account opening balance is also set $100 and this means that a currency trader can start trading with as little as $100 dollars.

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