Foreign exchange or Forex in its simplest sense is trading currencies. In its simplest sense, it involves buying one currency using another currency with the intention of selling it for profit. It is the biggest and most liquid financial market and it operates 24 hours a day. Players in the market include banks, insurance companies, corporations, even individual currency traders.
The exchange rate of any currency pair follows the concept of demand and supply. When a currency pair is in demand, its price and value increases proportionately. Accordingly, when demand drops their values will fall. Supply on the other hand has an inverse relationship with currency’s value and price. When there is of high supply, the exchange rate is decreased and vice versa. However, in currency exchange the true price movement is largely determined by demand and not by supply.
Typically, to transact in the Forex market you need to buy the standard lot which is equivalent to 100,000 units of the base currency. However, leveraged Forex trading provides traders a viable workaround, that is, they can buy the standard lot for a much lower price initially. Leverage is credit which allows one to buy positions at a margin or through derivatives like futures and options contract. Although you can profit immensely using leverage, it is not without risks. When currencies swing unfavorably, you may incur a loss far greater than your capital investment. Unlike financial markets, currency fluctuations in Forex Trading can be brought about by changes in weather and even more so by prevailing sociopolitical and economic climates.
Advancements in computing and Internet technologies have also encouraged the move from traditional paper trading to the more advanced and quick electronic trading. Financial institutions which act as Forex dealers usually provide proprietary web-based applications known as trading platforms. Since these platforms can be installed into portable devices like laptops and smart phones, traders and dealers have access to actual currency quotes and perform orders on the go. The best Forex trading platforms are those that are intuitive, and can provide quotations promptly and consistently.
If you are interested in investing in the currency exchange market it would be a good idea to study its mechanisms and risks further. More importantly, it is paramount that before you break into this market you have the necessary financial resources to hold out against losses when they come.
Taking into account its geographical dispersion and its continuous operation, Forex trading is the biggest and most liquid financial market in the world. Tapping it can be very lucrative endeavor. More Forex resource can be found here.