For several years, more investors grew dissatisfied with the performance of markets relying on domestic stocks. Because of this, they are starting to venture onto other options for international investments. There are several opportunities for foreign markets but foreign exchange trading is becoming the most popular. One of the reasons why investors like forex trades is quick trading with minimum hassle.
Normally, access to this kind of market has been only open to hedge funds, major corporations and several other institutional investors. Some of the worlds major banks have been involved in foreign exchange markets for years. Back then, the individual trader had no way to access forex since there were no methods of competing with the big boys on an even playing field.
The foreign exchange market was finally able to open its doors to retail clients in the 1990's. Makers of online forex market even opened the gates and made a fortune- by breaking huge trading positions into small-sized chunks that several individuals could buy and sell.
What this means is that individuals can now make trades alongside the largest banks in the world. More so, they can even use the same strategies and techniques that other professional traders use. The landscape of trading has changed suddenly and traders obtained a new alternative to future and stock markets.
The big Money and Forex
The forex market, or sometimes called FX, foreign exchange, currency market, and global market, may seem like the newest player on the trading world. However, it has been the choice of market for institutional investors and global hedge funds for several years. The big money has always traded forex since the large size of the market permits these kinds of traders to enter and exit large trades without making price alterations and upsetting the exchange rates.
During the past few years, the popularity of foreign exchange has taken off. The daily volume of forex market is estimated at about $1.9 trillion and still growing. This number is still unmatched by any kind of trading market available in the world.
Moreover, traders in forex have the capability to utilize remarkable leverage, which can be bigger than 200-to-1. The leverage allows traders to expand their trading positions and may also serve to amplify gains and losses. Due to the superior leverage in forex, the barriers for traders are very low. Traders in forex markets can open account with as little as a few hundred dollars.
Making Money in the Forex Market
Traders of currency basically place an effort to profit from the changes in exchange rates. Since forex markets have tremendous leverage, there is a small chance that the change in the exchange rate can cause in a large profit or loss. Wealth can be made or lost rapidly in the forex market; even a shift in the exchange rate that is equivalent to a few hundredths of a penny can be amplified into a significant loss or gain.
There are two kinds of traders in forex markets: the technical and fundamental traders. The technical traders main focus is on technical analysis. Such analysis is mainly the study of charts and indicators. These kinds of traders believe that all the pertinent information required to put a trade is contained within a chart.
On the other hand, the fundamental traders employ fundamental analysis. This can be loosely described as the study of economics, focusing on interest rates. Such traders believe that the currencies will eventually gain or lose strength depending on their economic strength and weakness and because of the changes in monetary policy and interest rates.
Trading Currencies in Pairs
The subject of currency trading in pairs can be confusing for beginners at first. Whenever an individual enter a currency trade, is entails two currencies. However, even if there are two currencies involved in trading, there is only one exchange rate. Thus, every transaction or trade involves two currencies and one exchange rate.
The value of the currency itself does not change but its value relative to another currency can change. For instance, a single dollar you may have today would still be worth $1 dollar the next day; although, the value of that dollar constantly fluctuates relative to other currencies. This is the main reason why there is a need to trade currencies in pairs in the forex market.
The 24-Hour Trading and Trading Sessions
Forex markets are synonymous to seamless and 24-hour trading markets; there are no rigid schedules. The market allows traders to decide for themselves when to trade regardless of the time of day. There are even part-time traders, with full-time jobs, who can trade forex. More so, wherever the individual is located or whatever hours he or she keeps, the individual can still trade in the forex market.
Since the market is open 24 hours each day, no one can really tell when the market opens and closes at a specific time of day. It is important for traders to designate a particular time of day as a benchmark.
Several traders begin trading at 5:00 p.m. Eastern U.S. or New York time, 10:00 p.m. London time. Since the forex market trades 24 hours, the trading day also ends at the same mentioned times of the day.
During that time of the day, the three largest forex trading centers, namely the United States, Great Britain and Japan, are quiet. However, the New Zealand and Australian dollars may witness some action during those hours.
The trading sessions for Asia starts a few hours later, at around 7:00 p.m. Eastern U.S. time, London midnight time. For the European session, the trading begins at around 3:00 a.m. Eastern U.S. time. Lastly, the U.S. session starts at 8:00 a.m. New York time, which is halfway through the trading session of London.