What is Forex? If you want to answer the question in the shortest and clearest way, the answer will be foreign currency exchange or foreign exchange market. Forex is composed of the first syllables of Foreign Exchange word and the Forex market is used to describe the market in which a country’s currency is exchanged for the currency of another country.The main difference between the Forex market and the other markets is the possibility to trade currencies in pairs. This allows you to carry out both buy and sell transactions at the same time. Although the major currency pairs such as American Dollar, Euro, British Pound, and Japanese Yen constitute the largest volume of Forex trade, many commodities such as Stocks, International Stock Indices, Gold, Silver, Copper, Wheat, Cocoa, and Cotton are also traded on the market.
The Forex market is open 5 days a week and 24 hours a day, with transactions being easily processed in any time slot, anywhere in the world, just with a simple internet connection thanks to the virtual network between individual participants, institutions and banks worldwide. Unlike other markets, the advantage of Forex CFD ( Contract for Difference) trading for the investors is earning profits on both price increase and decrease. In the Forex market, investors are able to manage their investments without considering expected price increase, as the price increase is evaluated only in one-way transactions.
The Forex market is known as the fastest growing and most liquid market compared to the other markets. There is no physical trading requirement and no obligation to trade in a physical place. It is a world market, open 24 hours a day, 5 days a week, where transactions are carried out on the basis of instantaneous principle. Along with the rapidly developing technologies, it offers a wide range of investment instruments and ROI opportunities due to the instantly processing options it provides to the traders. Quick market investments, low transaction costs, variety of order types, trading on a local and a global scale and the possibility to manage all instruments on one single platform are the factors that make Forex market so much attractive among the investors.
The main products traded in the Forex Market are the major and minor currency pairs such as US Dollar, Euro, British Pound, Japanese Yen, Turkish Lira, Swiss Franc. In addition, it is possible to trade indices, stocks, CFDs, cryptocurrencies, oil, natural gas, precious metals such as gold, silver, copper, and commodities like sugar, corn, wheat, cocoa.
Trading on the forex market can be fundamentally based on two kinds of movements, one for profit and the other for risk protection.
Speculative: If you have an anticipation of a certain direction regarding currency pairs, indices or commodities, you can trade to make a profit from this expectation. Moreover, by using the leverage facility of the market, you can trade up to 10 times with your investment.
Risk Protection: By using hedging strategies in the Forex market you can reduce the risk of exposure to any currency or commodity.
When examined historically, the Forex market dates to the clearing system. In a clearing system, a good was evaluated according to the goods received in return. With the development of money and the development of trade, it has been adopted that each item is expressed in a monetary value. This led to the fact that over time different currencies were fixed with each other, and in the following period, with gold prices. With the Bretton Woods Agreement, countries that agreed to fix their country’s currencies at gold prices agreed to consider their money in dollar terms. The dollar has started to be converted with gold. With the Smithsonian Agreement, the value of the US dollar was reduced by 8% compared to other currencies. This decline is in fact favoured by the US Dollar. The foreign exchange market was closed in March of 1973. Asian and European currencies were allowed to float freely against the dollar in the markets opened during the same month. These changes made today’s basic forex market by enabling free movement of exchange rates. While transactions were formerly made over the phone, the Internet has grown rapidly and today it has become a market that has reached an average daily transaction volume of $ 6 trillion.
– The world’s largest and most liquid market,
– CFD trading option,
– Open 24 hours/ 5 days,
– A single and easy access to the market,
– The possibility of trading with variety of order types,
– Mobile trading from any place,
– Leverage trading option,
– Possibility of automatic order entry,
– No opening, annual and other account fees.
Another advantage of the Forex market is to trade large volumes with low budget thanks to the leverage feature. This feature allows the investor to take advantage of higher buying power. With a 1:100 leverage ratio, an investment of $ 100,000 can be made with an investment of $ 1,000.
The major players on the Forex market are central banks, funds, banks, portfolio management firms and companies, as well as individual investors. The reasons for the many different participants involved in the market are the transactional flexibility, instant intervention and safe trading.