Forex

Forex is a truly global 24-hour market, on which international currencies are being traded. The trading day on the Forex Market begins from Sydney moving west, around the globe, through the major financial centers – Tokyo, London and New York. Then the cycle goes again only to stop during the weekend. On this market, investors try to comprehend with the ever-changing currency values, caused by economical, social, political and other factors.

On the Forex market exist the so called ‘4 majors’. Those are the 4 main currency that traders use – USD, EUR, JPN and GBP. 80% of all transactions involve those currencies, because of the fact that they represent stable economies, stable governments and respective banks.

A very interesting term associated with the Forex market is leverage. Leverage can be defined as the process by which an investor can buy an amount from a given currency much larger than what he can afford with the money in his account. For example, you can open a mini-account with just 250$, set a leverage of 100, and you will be playing with $250 000. This means that even if the market is very stable at a given, if you trade with such large amounts of cash, you can make a lot of profit with the smallest variations in the value of two currency pairs. But at the same time, you can loose your money real quick for the very same reason.

The non-stop 24 hour, 5 days a week nature of the FX market means that as an investor in it, you are able to react at any given moment. The fact that it’s global, means that a change in the economy in Australia can affect other currencies, not just the AUS dollar. The market can shift without anyone expecting it, causing great losses for traders. Hence, there is always a bit of chance involved in this business, it’s not just science. Therefore, you must be armed with the most up-to-date information, experience and intuition.

Besides the economies and political situations in the respective countries, other main factors forming the currency values are the interest rates and inflation. Quite often, entire governments are investing in the Forex market in order to influence their currency, whether they want to lower it or raise it.

To sum it all up, the main advantages of the FX market are the fact that it doesn’t stop Monday to Friday; it’s global, so people from all over the world can trade on it; transactions costs have become quite low, and at some brokers, there aren’t any; there is always something going on, one currency making a move on another.