FOREX TRADING: WHAT IS FOREX (FX)?
Forex (fx) refers to the
Foreign Exchange also, Forex trading is a term used to describe individuals
that are engaged in the active exchange of foreign currencies, often for the
purpose of financial benefit or gain. That can take on the form of speculators,
who are looking to buy or sell a currency with the goal of profiting from the
currency’s price movement; or it can be a hedger that’s looking to protect
their accounts in the event of an adverse move against their own currency
positions.
The term “forex trader” may describe an individual
trader on a retail platform, a bank trader utilizing their institutional
platform, or hedgers who may be either managing their own risk or outsourcing
that function to a bank or money manager to manage the risk for them.
FOREX TRADING: THE FX MARKET
The foreign exchange market, or forex (FX) for short, is a decentralized market place that facilitates the buying and selling of different currencies. This takes place over the counter (OTC) instead of on a centralized exchange.
In reality, the above example is only one of many factors
that can move the FX market. Others include broad macro-economic events like
the election of a new president, or country specific factors such as the
prevailing interest rate, GDP, unemployment, inflation and the debt to GDP
ratio, to name a few. Top traders make use of an economic calendar to
stay up to date with these and other important economic releases that can move
the market.
On a longer-term basis, one major driver of Forex prices are interest rates from the related economy, as this can have a direct impact of holding a currency either long or short.
WHAT EXPLAINS THE POPULARITY?
The foreign exchange market allows large institutions,
governments, retail traders and private individuals to exchange one currency
for another and the ‘core’ of the FX market is what’s known as the interbank
market, which is where liquidity providers trade amongst each other.
The benefit of having forex trade between global banks and
liquidity providers is that forex can be
traded around the clock (during
the week). As the trading session in Asia comes to a close, the European and UK
banks come online before handing over to the US. The full trading day ends when
the US session leads into the Asian session for the following day.
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