The Forex Market, also known as iFOREX is the financial market with the highest volume of transactions globally, and has an average daily operations exceeding $ 5 billion. The term Forex emerged from the phrase Foreign Exchange Market, also known by the acronym FX.
The Forex Market or FX, is the largest trading market in the world, their stay or operation for the retail investor or for the particular sector is largely unknown compared to bond markets and equity. This is due in large part to the lack of knowledge of Forex Market in the investment community in general, along with a lack of understanding of how and why the movement of exchange can be in one of the best investments. Adding to the mystique of this market is the lack of a center similar to the NYSE or the CME physical exchange. It is this very lack of structure that enables the Forex trade 24 hours a day, beginning the trading day in New Zealand and continuing through the time zones five days and a half per week worldwide.
The Forex Market has unique features compared to other financial markets, since it does not have a centralized location or physical location. Forex is a market made up a computerized electronic network that allows banks, financial institutions, investment funds, corporations, and private investors from other market players can buy and sell currencies. That is why Forex has no time limits and operates 24 hours a day with the world’s leading financial centers.
Traditionally, access to the Forex Market was limited to the bank community where traded large blocks of currencies for commercial, hedging, or speculative purposes. Then with the advent of Brokers they have opened the doors of the trading institutions such as investment funds and money managers, as well as the merchant or retailer or private investor. This sector of the market has grown exponentially in recent years.
However, since 1971, when he started the free floating exchange rate and the gold standard was abandoned, currency trading was revolutionized. Currently in addition to import and export companies, there are a variety of participants in the Forex Market. Among the new participants are investment funds, risk managers, speculators and even private investors. Each particular group has its own objectives by investing in forex. For example, we find from the simple need to pay bills in foreign currency for goods and services, to investment and speculative purposes.
For active traders and investors, foreign exchange should be no different than other investment products such as equities, commodities or fixed income. Because of globalization in the economic world and consolidation of economic regions as a whole (ie, including the European Union), including currencies or currency in a portfolio of investment it helps to diversify assets and can substantially help reduce the risk of trade in the Forex Market.
By definition an operation in forex involves buying and selling two currencies simultaneously at the price determined in the market, called quote. For example the currency used in the Euro Zone is the euro, while in the United States, the legal currency is the American dollar. So when an investor buys the EUR / USD actually buying euros and selling US dollars at the same time to acquire euros. This operation is technically defined as “placing a long position” regarding the EUR / USD quoted in the example. To invest in the Forex Market must resort to a broker. You should also determine which currency pair you want to invest. The choice you make, the would have to make based on their knowledge.
Usually brokers do not make suggestions regarding the currency pair trading just limited to execute their orders. The exchange offer traders and investors a market where they can sell and / or buy as if they were an investment product represented in a number of combinations of currencies traded through the Forex Market.
To make money in the Forex Market, you are able to place long positions and / or placing short positions. When you open a long position, you would be buying one currency and selling it when it expects to reach a higher currency value and earn money on the difference between the sale and purchase. In short, it is expected that within the base currency to appreciate.
The different combinations of coins represent nothing more than the value of one currency against the value of another. That relationship is represented by a single price. In currencies, the price of a currency pair represents Forex Market expectations (at that time), the value of that measured in terms of the other currency coin, given the current and expected economic and political situation in the two economies involved in negotiating the currency pair.
If, for example, inflation and interest rates in the economy are low and stable, and if the production of a country growing strongly, or if its policy is stable and expectations are positive, then you could expect in the Forex Market (in general), the currency of that country will stand firm against another currency of another country less favorable.
On the contrary, placing a short position, you would be selling one currency to buy it back later at a lower value. Awaits the base currency will depreciate. This is one of the main attractions of the Forex Market, as it can make as much money with a bear market as bullish. While you have the ability to predict the direction of the market and the currency pair in question, it may be positioned in such a way to always make money, and this of course, no matter which direction the market takes.
In the Forex Market like in the stock market if the national and global economy is strong, and if inflation is not rampant, if competition from a company you are not taking away market share or eating part of margins and if the demand for the goods or services keeps rising, with companies maintain internal policies such workers are compliant and are productive, expectations for the shares of that company will be encouraging, then you can expect that actions the company continue to rise.
Similarly, if we compare the Forex Market with the stock market, it can be determined that there are other factors that affect the value of an asset in the short term, such as technical analysis, supply and demand, seasonal capital flow The current price of the financial instrument, etc. This is the universal dynamics that will move the value of a currency upwards or downwards. In analyzing the dynamics of prices and the implementation of a sound money management policy and discipline, the investor can ensure greater success in currency trading.