What is Forex (Foreign Exchange Market)?
Forex is abbreviated from Foreign Exchange Market (currency market). This market is one of the biggest markets around the world. Forex is a global trading market, which participants are large international banks, institutional investors, funds and speculators. The daily turnover in the foreign exchange market exceeds the amount of 4 trillion US dollars and it is continuously growing.
Main operations in foreign exchange market are buying, selling and exchanging currencies. The transactions can be done electronically (by computer) from any point of the world or in the cash markets (currency exchange offices). In both situations we have foreign exchange or Forex transaction.
The major currency pairs in forex market are: US dollar, Euro, British pound, Japanese yen, Swiss franc, Canadian dollar and Australian dollar. Of course there are many other available currencies.
Unlike other financial markets (such as the stock market), the currency exchange market is not positioned in a specific location. Forex market operates 24 hours in a day through a network of computer terminals connecting banks, corporations, brokers and individual investors who trade with different amounts ranging from millions of dollars for a deal to hundreds of dollars for ordinary investors. This ensures the formation of so-called "market liquidity" or the ability to buy or sell currencies without any restrictions. Trading begins each day in New Zealand followed by Sydney, Tokyo, London and New York, to the coast of California.
The development of the computers and the Internet technologies have made the forex market accessible to small players which can buy and sell currencies from their office or home.
Forex traders can also use Automated Forex software to automate their trading. Such software is called Forex Robots or Expert Advisor. Forex Robots are very popular among forex traders because they can work 24 hours per day and 5 days per week without any problems. Forex Robots (Expert Advisors) can trade, monitor and manage the trades automatically. Example for forex robots:
For each foreign exchange transaction always has two prices Bid and Ask. For example, take the price of EURUSD, which would look like this: 1.1200 / 1.1202.
- Buy (Bid): The price at which the dealer buys and investors Sell
- Sale (Ask): The price at which the dealer sells and investors buy the currency
The difference between the Bid and Ask is called spread (Spread). The spread is the cost that the investor pays for the transaction.
Currency pairs usually have 4 digits after the decimal sign, for example: GBPUSD 1.4300 / 1.4302, the last sign is called a "pip". In most currency pairs a pip is 0.0001 from the current rate. Of course there are some exceptions. The currency pairs where the second currency is the Japanese yen (JPY), one pip is equal to 0.01.
Investors take decision to Buy or Sell based on trade technical or fundamental analysis. Technical analysis uses charts, trend lines, support levels and resistance, mathematical models and other things. Investors using fundamental approach base their decisions on economic analysis.