The currency exchange market (or Forex, Fx) – is a decentralized global market, where currencies are traded. It does not have a separate area to perform operations. On the contrary, traders and other market participants carry out transactions in electronic format according to the OTC (over-the-counter) principle, that is, outside of the stock exchange.
the foreign exchange market is an extremely interesting market for private investors. In effect, it allows speculating with the exchange rate of currencies, both upwards and downwards. The daily turnover is USD 4 trillion, where 80% of this sum belongs to speculative transactions, which are opened to obtain profit from the difference in rates.
History of the Forex market
In the formation of the Forex Market, the most important role was played by two historical events: the introduction of the Gold Standard and the transition to the Bretton Woods system.
Gold Standard and Bretton Woods system
The Gold Standard was introduced in the year 1875. The main objective pursued by the governments of that time was to bind the currencies of their countries to gold. All the larger states established a standard, by which a currency unit could be exchanged for a predetermined amount of gold. Respectively, to express the value of one currency for another, it was necessary to calculate the correlation of the masses of gold that could be bought with them. In this way, the rate of change was determined. However, the First World War put an end to the gold standard, as countries tried to apply economic policies that prevented the link to gold.
In July 1944 700 representatives of the allied countries met in Bretton Woods (New Hampshire, USA) to sign the agreement on the formation of a new system of regulation of monetary relations. This agreement was called the “Bretton Woods Agreement”. The rest of the countries linked their currencies to the US dollar. In this way, the dollar became the main reserve currency and the only currency backed by gold. However, the US gold reserves they were so impoverished at that time, that they would not be enough to cover new dollar reserves from the central banks of other countries.
In August 1971, the United States declared that they stopped backing with gold the dollars, which were reserved in the central banks. This decision put an end to the monetary system of Bretton Woods and announced the beginning of the era of the Forex currency exchange market.
How to trade in Forex?
Operations in the currency exchange market involve the purchase of one currency and the sale of the other currency at the same time. This means that the price of a monetary unit can be expressed in a quantity of other monetary units. Find a good broker such as trade 111 or marketgbp and start trading. An independent observer may come to the conclusion that Forex trading is a speculation in the correlation of such rates.
When you speculate in the currency market, you can either buy a pair of currencies, which means that it is considered that your quote will rise, or on the contrary sell it, hoping that your quote will go down.
In two words, when you buy EUR / USD, this is equivalent to selling Dollars to buy Euros. On the contrary, when EUR / USD is sold, Euro is sold to buy Dollar. Trading in Forex can provide a high profit, but you should not forget about the risks, which it contains.
Commercial session in the Forex market
The Forex exchange market never sleeps, and the quotes always change. It is the only market that works all day 24/5. This means that the market is always open, if the stock markets close in one part of the world, then in another they start to work.
The lack of time frames is a very important condition for traders with a busy schedule. They will not have to think about the time of the opening and closing of business sessions, and they can perform operations at any time convenient for them.
Participants of the Forex market
In the Market there are many participants, sometimes they are called Forex players. The participants trade, pursuing different objectives. It should not be thought that commercial operations can be carried out only to obtain a benefit on currency rates. Each participant has their own role, and, complimenting themselves, they make the market more stable.
The main market participants:
- governments and central banks of the countries
- banks and commercial companies
- hedge funds
- brokerage companies
- individual merchants
Even as the currency trading market is certainly a fine market to trade, I would send a message to all novices that trading includes both the talents for reward and t. Many humans come into the markets thinking best about the reward and ignoring the risks concerned, that is the fastest strategy to lose your whole trading account money. If you wish to get started trading the Fx market, it’s critical that you are aware of and accept the fact that you would lose on any given trade you make.