Learn the basics of Forex trading, the risk involved and how to get started.
What is forex?
The foreign exchange market (shortened to forex or FX) is the largest and most liquid market in the world;average daily trading volumes reached an all-time high of $5.3trn in April 2013 and could reach $10trn by 2020, according to some estimates. [Source: BIS, UBS AG] (See table)
FX was historically the domain of large, institutional investors but, increasingly, retail investors are trying their hand at trading currencies, seeking the opportunities which are unique to this marketplace.
A key attraction is that forex is an over-the-counter (OTC) market, it is not tied to any one exchange, and is open 24 hours a day. Another is that currency brokers make their money via spreads, not via commission on each individual trade like a stockbroker would, so FX is potentially a more cost effective way for individuals to invest.
Trading forex involves taking a view on the strength and stability of a particular economy in relation to others, looking at economic trends and key top-down indicators: this is fundamental analysis.
Traders may also use technical analysis to identify patterns in price movements, represented graphically, which can form the basis of future trades.
Forex movements are driven by changes in a country’s fundamentals, as well as the usual forces of supply and demand which move every market.
In FX, the spot market refers to trades which are executed and fulfilled immediately, rather than bets on future values which are traded using derivative such as options or futures contracts.