There are many investment opportunities in the world today. All you need to do is find a field that interests you. Do not just jump into an investment because others are doing it, you may end up losing rather than winning. One of the most sort investments is in Forex market. This market presents great opportunities for everyone whether an expert of a beginner. Forex market works just like shares and bonds, only this one is less risky. In this article, we discuss the basic things that are important for forex trading beginners. It presents an overview of what forex market entails and how you can get it together with benefits and risks involved.
As a forex trading beginner, do you know what market exchange is?
Every country in the world has its own currency used only locally. The currencies differ in value depending on the economy of the country. Currencies are part of every human activity despite the fact that others may not even realize it. For international trade to take place, currencies must be exchanged. Trade between countries is often referred to as foreign trade. International businesses also require that the local currency is exchanged. The ‘place’ where currencies are exchanged is referred to as the foreign exchange market or forex market.
One fact that forex trading beginners can take advantage of this is that forex market is the largest financial market in the world. This is because currencies must just be exchanged; there is no way around it. If you travel from Kenya to the USA for example, you will need to acquire the US Dollar which is the acceptable local currency in the USA. Another reason why forex is the largest financial market in the world is because of its liquidity.
How does forex market work?
For forex trading beginners, it is important to note the aspect that makes forex market really unique. The market uses a decentralized system of operation whereby business is not carried in one place. There is an electronic system that works over-the-counter (OTC). Traders make their transactions using their computers around the world. This is a market that is open for 24 hours every day. In a week, the market runs for five and a half days. It is active at any time of the day. When the trading day in Paris and Sydney ends, the market begins in the USA. You can never have a single time of the day when the market is dormant. The currencies are traded across almost every timeline around the world in major centers which are in London, Paris and Sidney, Tokyo Japan, New York, Frankfurt, Zurich, and Singapore.
Benefits or loses come from the currency fluctuations. Meaning if you suspect that a currency will increase in value, you buy it and if you suspect it may go down, you sell.
It is good to note that the little fluctuations witnessed on the currency make all the difference. A currency may do down by 0.001 percent or go up by the same volume. Forex trading beginners may be tempted to think that this is a very insignificant difference. However, consider a large company that wants to pay its international staff; such a fluctuation could be very important to them.
Who are the major players in the forex market?
A question that all forex trading beginners need to ask is who trades forex? The first and biggest trader in forex market player is banks. Banks do their trading with other banks using electronic means. Apart from trading for themselves, banks also ensure transactions for different clients who may have sort to invest in them. The percentage volume of all currency traded is accounted for and regulated by the big banks like the World Bank.
Other very important players in the forex market are the central banks. They serve as regimes for currency trade especially in open market, in other words, fixing forex. Central banks are responsible for stabilization of a country’s economy and therefore they take action on the forex market to ensure the local currency is in good condition. The value of a currency greatly affects the economy of a government.
The next group of players in the forex market is the investment managers and hedge funds. Investment managers represent large accounts like pensions and endowments. They trade majorly in foreign securities and forex trades that are speculative. Hedge funds too work on speculative trades.
Corporations that import or export goods depend on forex exchange to make cash transactions. A company exporting good from France to China must trade is forex to shield them from risks associated with currency fluctuations. They must convert the Euros into Yuan and back after the initial purchase.
The final player in the forex exchange is the individual traders. Though their volumes as retail traders are very low compared to the other players, they are important all the same. Forex trading beginners must be aware of their category.
In what ways do players participate in forex trade?
Before making a decision to invest, forex exchange beginners must understand different ways in which institutions, corporations, and individuals trade forex. There are three major ways, spot market, forward markets and futures markets. In spot market the current price determines how currencies are bought and sold, the price of a currency is influenced by demand. After finalizing a deal, it is termed as, a ‘spot deal’. In simple terms, a spot market is a forex with transactions that are present. Forwards and futures markets do not trade actual currency like spot market. In these markets, indirect transactions in form of contracts are bought and sold. The contracts can be the used to claim a certain currency type. The claim will also include a future date of settlement with a specified price per unit. Contracts in the futures are binding on both parties involved.
Forex exchange beginners can learn to trade options. With the tips provided, you can become an expert and make yourself a fortune from forex exchange markets.