Forex is a trade arena where investors trade in foreign currencies. This article explores the features of Forex, a market with a daily turnover of approximately $3 trillion.
How Does Forex Work?
The Forex market is open to investors 24 hours a day, 5 days a week, following the trading week. Currency values fluctuate throughout the day according to supply and demand of individual currencies.
Forex is considered one of the most secure investment mediums. It is deemed more secure than channels that attract higher risk, such as bonds, stocks, and options. However, it must always be remembered that no investment is guaranteed or without risk.
The stock market works in essentially the same way as any market. It is a place where commodities are bought and sold. The Forex market trades currencies, with more than 100 different currency pairs being traded every day.
Currency exchange rates are the same throughout the whole world. If the Euro is valued at 1.56 US dollars in Tokyo, it will be valued at the same rate in New York.
Forex investors are speculators. They buy and sell foreign currency in the hope to attain a profit from fluctuations in exchange rates. Though the Forex market comprises commodities as well as currencies, just 5% of transactions are for the purposes of commerce, with the remaining 95% being speculative in nature.
What Are the Advantages of Forex?
When an investor purchases a stock and cannot sell it back, they are essentially stuck with it.
This scenario is far less likely in the Forex market.
When an investor buys Pounds, US Dollars, Euros, or any other tradable foreign currency, they are able to liquidate their asset at any time.
One of the biggest advantages of currency trading is that it does not matter what the trader buys, there will always be a buyer when they want to sell it.
Another key advantage of the Forex market is exchange rates are beyond the remit of external financial bodies. No matter how accomplished a speculator is, he or she has no influence over the exchange rate. Central banks do intervene once a decade, and they can affect currency values by up to 2%, but movements of this nature typically last for just a few hours before the exchange rate returns to its normal market price.
Since no other financial body – as large as it may be – can affect currency values, this makes currency trading much fairer than trading stocks or options, where large brokers have the ability to change stock prices by tens of percentage points at a time.
Finally, due to its nature and availability, foreign currency is easier to follow and trade. With stocks, investors must keep a variety of factors in mind. For example, with each company they invest in, investors need to identify the other shareholders and what percentages they own. They will also need to access profit and loss reports, balance sheets, and internal information, such as future contracts and resignation of company executives. Keeping track of all of this information on a day-to-day basis, particularly where the investor owns shares in several companies, can be prohibitively time consuming.
With Forex, however, traders need to keep tabs on just five to six datasets every month. Trading companies provide investors with this information in real-time, enabling them to identify opportunities at a glance, and make trades accordingly.
One of the other big advantages of Forex is that traders all over the world receive the same information, at the same time. For instance, when the US Federal Reserve Governor decides to increase interest rates, this information is relayed instantly all over the world, giving traders in all countries the same opportunities to buy or sell, creating a level playing field globally.
HYCM provides trading information as well as a wide variety of different trading instruments. With more than 40 years of group experience, HYCM offers more than 100 different trading instruments on both MT4 and MT5, including CFDs for currencies and stocks.
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