What is Forex and the currency market?
Forex are the initials of the Foreing Exchange, also known as the Forex market because they buy and sell currencies from around the world. Forex is the largest financial asset market worldwide: The daily trading volume amounts to more than 5 billion dollars. This volume is greater than the sum of all stock exchanges.
In FX, the currency exchange rate is traded daily. The exchange rate always refers to a currency pair. Therefore, when trading in the FOREX market, a certain currency pair is operated:
& gt; & gt; For example , in the euro / dollar pair (EUR / USD) an exchange rate of 1.20 means that to buy 1 EUR (base currency of the pair) 1.20 USD (secondary currency of the pair) is necessary.
If the EUR appreciates against the dollar, the EUR / USD exchange rate will increase in value, for example, to 1.25, which means that more dollars will be needed to buy a euro.
On the contrary, if the EUR weakens with respect to the dollar, the exchange rate of the EUR / USD pair will decrease its value, for example, to 1.15: it will take less dollars to buy a euro.
In FOREX it is possible to trade with a great variety of financial instruments such as funds, ETFs or CFDs, being, with a big difference, the trading with CFDs the most used by the brokers that operate in the currency market.
Through trading with CFDs in currency pairs, it is possible to trade whether the base currency of the pair is expected to strengthen or is expected to weaken with respect to the secondary currency of the pair:
In the first case, you can buy CFDs on the pair, obtaining a gain proportional to the appreciation of the price of the pair from the time of purchase of the CFD until the moment of closing the transaction.
In the second case, you can sell CFDs on the pair, with the gain proportional to the depreciation of the price of the pair.
Why invest in FOREX?
The currency market is the main market for the development of online trading operations. In fact, the growth in recent years of online trading has come hand in hand with the annual growth of the volume traded in this market.
These are the main advantages of the FOREX market for online trading:
With a trading volume of more than 5 trillion dollars, the forex market is the most liquid market in the world. This means that it will always be much easier to open or close positions than in other less liquid markets.
- Less volatility
that other financial markets when negotiating the exchange rate between two currencies, whose variation depends on fewer variables and is, in relation to other assets, such as stocks, easier to predict.
- Higher leverage
Given the lower volatility of the foreign exchange market compared to other markets, in FOREX trading it will always have greater leverage than when it operates in other markets.
- Quotation in continuous
24 hours a day for 5 days a week.
The foreign exchange market is a decentralized market, which greatly facilitates its access and, therefore, its high trading volume.