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 that separates the Forex market from other markets is the facility of this duplex trading. With this difference, you can carry out both buy and sell transactions on your wish. Even if the major so-called parities such as American Dollar, Euro, British Pound, and Japanese Yen constitute the largest volume of Forex, 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 a market that is open 5 days a week and 24 hours a day, with transactions being easily processed in any time slot with a simple internet connection on the active stock market and market anywhere in the world thanks to the virtual network between individual participants, institutions and banks worldwide. Unlike other markets, the advantage of duplex trading on this market is that investors can earn profits both when the prices are increasing and decreasing. In the Forex market, investors will be able to steer and evaluate their investments without expecting any increase, as only prices are expected to increase in one way transactions.
As the Forex market is known, it is the fastest growing and most liquid market compared to other markets. There is no obligation to trade in a physical place or a physical trading requirement. On the world market, which is open 24 hours a day, 5 days a week, transactions are carried out on the basis of instantaneous values. Along with the rapidly developing technologies in economics and finance, it offers a wide range of investment and return opportunities thanks to the instant processing facilities it provides to its users. Directing investments in the market promptly, low transaction costs, the richness of ordinance types and realization of these opportunities from only one channel are the factors that make Forex attractive. Buying and selling transactions are always going on in this market thanks to the users and investors who live in different countries, at different time intervals. This means that investments are being made both locally and globally.
In addition to the major and minor currency pairs such as US Dollar, Euro, British Pound, Japanese Yen, Turkish Lira, Swiss Franc in the Forex market, it is also traded through precious metals and commodities such as Gold, Silver, Copper, Oil, Sugar, Natural Gas, Corn, Wheat, Cocoa. Apart from these, international stock exchange indices, stocks of large corporations, CFDs, and so on can be invested in thousands of financial intermediaries with many different risks and implications.
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.
– Being the world’s largest and most liquid market,
– Providing duplex processing capability,
– Being open of the market during 5 days / 24 hours,
– Providing a single screen and easy access to the market,
– Low trading cost,
– Demo account availability,
– The possibility of trading with dozens of ordinance types,
– Immediate evaluation of risks against developments,
– Ability to operate at the same price worldwide,
– Mobile ease of trading,
– Prices that cannot be manipulated,
– Leveraged trading facility,
– Automatic ordinance entry possibility,
– There are no fees like opening fee, annual account fee.
Another advantage of the market is to trade large volumes with low budget thanks to a 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 market consists of central banks, funds, banks, portfolio management firms and companies, as well as individual investors. The reason for the many different participants to be involved in the market is transactional flexibility, instant intervention and safe trading.