What is FOREX?
FOREX (FOReign EXchange Market) is an international foreign exchange market, where money is sold and bought freely. In its present condition, FOREX was launched in the 1970s, when free exchange rates were introduced. Only the participants of the market determine the price of one currency against the other proceeding from supply and demand.
The high trading volume of almost $2 trillion dollars traded each day makes the forex market a very liquid one — it is the biggest liquid financial market. According to various assessments, money masses in the market constitute from 1.5 to 2 trillion US dollars a day. (It is impossible to determine an absolutely exact number because trading is not centralized on an exchange.)
Transactions are conducted all over the world via telecommunications and online forex trading 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. In practically every time zone (that is, in Frankfurt-on-Main, London, New York, Tokyo, Hong Kong, etc.) there are dealers who will quote currencies if you’re looking to learn forex trade rates.
In our opinion, the FOREX is a more objective market — if some participants would like to change prices for some manipulative purpose, they would have to operate with tens of billions dollars. That is why we believe any influence by a single forex broker in the market is practically out of the question.
The superior liquidity allows the traders to open and/or close positions within a few seconds. The time of keeping a position is arbitrary and has no limits: from several seconds to many years. It depends only on your online currency trading strategies. Although the daily fluctuations of currencies are rather insignificant, you may use margin up to 100:1. This is why currency speculators with small capital of $ 5,000 – $50,000 can profit or loss from small forex rate moves in the currency market.
The idea of marginal trading stems from the fact that in FOREX speculative interests can be satisfied without a hundreds of thousands of dollars. This decreases overhead expenses for transferring money and gives an opportunity to open positions with a small amount of US dollars. That is, one can conduct transactions very quickly, getting a big profit or loss, when the exchange rates go up or down. Many speculative transactions in the international financial markets are made on the principles of marginal trading.
Margin trading is trading with a borrowed capital. Marginal trading in an exchange market uses lots. 1 lot equals approximately US$100,000, but to open it is necessary to have only from 0.25% to 1% of the sum.
For example, you have analyzed the situation in the market and come to the conclusion that the pound will go up against the dollar. You open 1 lot for buying the pound (GBP) with the margin of 100:1 meaning you margined US$1,000 at the price of 1.7700 and wait for the exchange rate to go up. Some time later your expectations become true.
You close the position at 1.7800 and earn 100 pips or 1 cent for a return of $1,000. Remember you could have lost $1,000 also if the GBP/USD went to 1.7600. This is why we recommend the use of stop-loss orders to help protect your investment. For the calculations of pips please call +1 617-820-5254. Some pip values stay constant, but some do change. The constant pip values are 1 pip of the EUR/USD, GBP/USD and AUD/USD equals US$10 per US$100,000 position.
Everyday fluctuations of currencies average about 100 to 150 pips, giving FX traders an opportunity to make or lose money on these changes.
In FOREX, it’s not obligatory to buy some currency first in order to sell it later. It’s possible to open positions for buying and selling any currency without actually having it. This is why margin is used. In order to assess the situation in the market a trader has to be able to use fundamental and/or technical analysis, as well as to make decisions in the constantly changing current of information about political and economic character.
Most small and medium players in financial markets use technical analysis. Technical analysis presupposes that all the information about the market and its further fluctuations is contained in the price chain. Any factor, that has some influence on the price, be it economic, political or psychological, has already been considered by the market and included in the price. The initial data for a technical analysis are prices: the highest and the lowest prices, the price of opening and closing within a certain period of time, and the volume of transactions.
