Forex trading is usually preferred to other financial markets, mainly because of its low spreads and high leverage. As you can imagine, trading on the world’s largest and most liquid financial market comes with more than just two advantages. Find out more about forex, how you can trade it and why it should be your top choice in 2019.
The Foreign Exchange Market – Overview
The Forex Market, also referred to as the FX, Foreign exchange or Foreign currency market, is the largest, most liquid decentralized market in the world, with a daily turnover that exceeds $5 trillion. In this marketplace – banks, businesses, companies and individual investors exchange and speculate on currencies.
The FX market is open 24/5 and brokers usually operate from Sunday at 4:00 pm EST until Friday at 4:00 pm EST. The ideal time to open a position is during an overlapping session relevant to the currency pair you’re trading. The four major overlapping sessions are the following:
- New York and London: 8 AM to 12 PM.
- New York and Singapore: 3 PM to 5 PM.
- Tokyo and Sydney: 7 PM to 12 AM (EST).
- Tokyo and London: 3 AM to 4 AM (EST).
How Forex Trading Works
Trading forex means buying or selling a currency, by speculating on the price of one currency against another. The one currency you sell or spend is called the base currency, while the one that you purchase is known as the quote currency. Together they form a currency pair. In forex, the sell price is known as the bid, while the buy price is the offer, whereas the difference between them is called the spread and represents the cost of the trade.
There are three types of currency pairs: major, minor and exotic. The first category is the most actively traded and its main characteristic is the presence of the USD as either the base or quote currency in all the pairs. This category includes the EUR/USD (Euro/US dollar), USD/JPY (US dollar/Japanese yen), and the GBP/USD (British pound/US dollar). The minor currency pairs, also known as crosses, do not include the US dollar at all. Some of the most traded currency pairs from this category are the EUR/GBP (Euro/British pound), the EUR/AUD (Euro/Australian dollar), and the GBP/JPY (British pound/Japanese yen). Finally, exotic currency pairs are less liquid and have higher spreads. They are typically formed from a major currency and a currency from a country with a developing economy. This category includes the EUR/TRY (Euro/Turkish lira), the JPY/NOK (Japanese yen/Norwegian krone), and the USD/HKD (US dollar/Hong Kong dollar).
Trading forex is possible by opening an account with an online forex broker. TradeFW.com is a licensed and regulated award-winning broker that gives you access to this exciting market and provides you with a modern & professional trading environment, as well as a large quantity of educative materials to help you succeed. The importance of the broker you choose is crucial for your results, so don’t neglect it!
Factors That Influence the Forex Prices
While many factors contribute to the outcome of your trades, there are certain variables you need to analyze when trading a currency pair.
- The Interest Rates set by the Central Banks of the two countries that represent the currency pair.
- The economic strength of the two countries that represent the currency pair, which is mainly measured through the Gross Domestic Product (GDP), inflation rate, consumer price index, and unemployment rate.
- High-impact news of political or social nature that are related to the two countries that represent the currency pair. Natural disasters or political tensions can drive the currency prices to move, too.
- The prices of commodities can sometimes affect the value of certain currencies. For instance, USA and Japan are two of the world’s largest oil importers; which means increased oil prices can affect the US dollar and the Japanese yen.
Why Forex can be more profitable than other assets
Let’s begin with the most obvious and appealing advantage – the outstanding volatility! The daily trading volume of this market surpasses $5 trillion, in comparison to the second largest financial market, the stock market, which trades around $200 billion per day. Let that sink in! This great volatility brings along a great number of trading opportunities that wait for you every moment! Moreover, trading forex implies lower costs (commission + spread) compared to other assets, where additional fees are charged. Brokers usually make this feature better by allowing you to trade with appealing leverage ratios. For example, TradeFW provides its clients with a ratio of up to 1:30, meaning that they can trade up to 100k using just 3333 of their own funds.
Another advantage that makes Forex better than its “peers” is the fact that the market operates 24 hours, five days per week. This flexibility allows all types of traders to approach their strategies efficiently without the pressure of a tight schedule.
The Forex market is the world’s largest and most liquid financial market, filled with endless trading opportunities. Its set of unique advantages and features maintain it the most popular and lucrative trading asset, so don’t hesitate to make 2019 the year that marks the beginning of your forex trading journey.