The forex is an over-the-counter, or global, market for the trading of foreign currencies. This marketplace determines international exchange rates for each currency in a worldwide market. It includes all facets of trading, buying and selling currencies at either current or predicted values. All transactions are made electronically through banks, money transfer agents, brokers, and online currency converters. The forex market is highly liquid and accessible because trades are not restricted by country barriers.
The forex is similar to the stock market in that it has numerous players and investors. However, unlike stocks and shares, foreign currency exchanges offer a flexible trading option to accommodate fluctuations in the different foreign currency markets. For example, the value of the Australian dollar varies with time, but the euro, British pound, Japanese yen and Swiss francs follow very fixed trading trends.
Traders use various strategies to beat the competition and earn profits. Some traders use Fibonacci ratios, others use forward or backward market trading, some buy when it’s low and sell when it’s high; some use technical analysis and some decide to wait for news from other individual investors or government agencies. Regardless of the strategies used, the objective is the same: To earn a profit from Forex trading by using strategies that enable the trader to take advantage of movements in one currency and then buy and sell other currencies simultaneously.
A Forex trader could be either a day trader or a swing trader. Day traders to buy currencies one day and sell them on the next in the hope of making a profit. Swing traders buy and sell the same currency pairs on consecutive days in the hope of making some profit from changes in the value of the currency. These traders may also participate in one or more markets that allow them to trade in several foreign exchange markets.
Traders who participate in interbank transactions are allowed to use leverage ratios. Leverage means a currency trader can increase his or her account size, which, in turn, allows him or her to increase the amount of currency he or she trades in each day. The interbank market offers more opportunities for profit because there is often a greater variety of currency futures contracts. When a trader participates in interbank transactions, it allows him or her to buy and sell a variety of different currency contracts without having to buy and sell their own currency pairs. Because of this advantage, a forex trader may be able to reduce the costs of trading by leveraging his or her account.
Another way a trader may profit from Forex is through speculation. Speculation occurs when a trader believes that the price of a particular currency pair will rise or fall in the future. Speculation is based on the assumption that the price of a certain currency pair will change in response to external factors such as the economy and interest rates. These factors are known as outside forces that can drive the price of a currency pair up or down. While the Forex spot market is open 24 hours a day, many Forex traders choose to participate in the futures markets during the morning hours or afternoon, when the central bank of a country will announce its decision on whether to release its national interest rate.