Forex Trading: Introduction, Participants and Benefits
Forex exchange market or currency exchange market is the largest market in terms of daily investment. Currencies need to be exchanged on a daily basis. Currency of one country cannot be used in another country. One needs to exchange currency to travel or conduct foreign trade and business. The need of exchanging is very high. This makes forex market the most liquid market of all markets.
Forex market is a decentralised marketplace, means there is no centralised depository or exchange where transactions are conducted. The transactions in forex market are conducted by several market participants. The participants can trade from any location.
Consumers and travellers
Consumers purchasing goods from foreign countries need to exchange currencies. Foreign exchange is also required if the purchase is done through internet. Credit card used for shopping these foreign good will show conversion in the credit card statement.
Travellers must exchange currencies before they travel to any foreign country. A traveller’s home currency cannot be used in the country to a place they are travelling to.
Businesses need to convert currencies when they are conducting trade and business with clients outside their home country.
Investors and Speculators
Investors and speculators require currency exchange when they are dealing with foreign investment. Investment in equities, bonds, bank deposits and real estate require exchanging currency. Investors and speculator trade in currencies as it is very profitable.
Commercial and investment banks
Commercial and investment banks provide currency trading services to commercial banking, deposit and lending customers. Commercial and investment banks also participate in forex market for speculation and hedging activities.
Government and central banks
Government and central banks trade in forex market to improve economic situations or to harmonise economic or financial imbalances. Government and central banks do not trade with an intention to earn profit from the forex market.
Benefits of forex market
Following are the benefits of trading in forex market as shared by easyMarkets.
Forex market, with daily investment of trillions of dollars, is the most liquid and largest market. Traders can trade at any time of the day. Buyers and sellers can transact at any given time. The greater number of trade ensures higher volumes of profit. The greatest liquidity is possible due to the operational hours of the forex market. Forex market operates 24 hours in a day and five days a week. Forex market operates in multiple time zones. If trade of US forex market closes, the forex market of Japan is active. Therefore, forex market is affected by different markets that are active at different time. The forex market changes dynamically. This makes forex market one of the most volatile markets as well.
The liquid and volatile nature of forex market makes it profitable for traders. The possibilities of earning profit through forex trading are immense.
Low cost trading
Forex trading is done through forex brokers. Forex brokers are like portals between traders and forex market. One can trade without a forex broker but for easy forex trading, a trader must select solutions provided by a broker. Traders make trading in forex market easy and profitable. Spreads are the cost to trade with most forex brokers. Forex spreads are tighter compared to other securities. Forex is most cost effective investment trading.
Leverage and margin
A trader has to open a margin based trading account with forex broker to trade in forex market. Leverage is provided to the trader by his or her broker on this margin account. Leverage allows a trader to trade larger market positions. This means a trader can invest more than the actual account balance and earn profit.
A trader can gain from forex market regardless of the market direction by applying some trading skills and following few trading precautions. Therefore, it is beneficial to invest in forex market.