The largest financial market in the world?

What is Forex Trading?

Forex stands for Foreign Exchange (foreign exchange). The international foreign exchange market (Forex) is the place where different national currencies are exchanged and exchange prices are fixed. The reason for the existence of such markets is trade transactions arising from international trade and movements in international financial markets.

The price fixed in this type of market is the so-called exchange rate, that is, the amount of currency of a country that must be delivered to obtain a certain amount of currency of another country.

Features of the Forex Market

The Forex market is characterized by:

· Market liquidity. Liquidity is an important feature of trading and it is said that the Forex market is the most liquid market in the world. This liquidity occurs especially when the main markets are open (London, USA and Tokyo). At these times there are always participants with the intention of trading, especially in the most traded currencies. However, there are times when the market becomes less liquid, such as during holiday periods.

· Open 24 hours. The Forex market is a global market, which is open 24 hours a day. This means that we can trade at any time of the day, although of course there will be times when there is less liquidity and volatility (like the Asian session). In other words, the Forex market is open 5 days a week, unlike other markets, for example the NYSE, which open in the morning and close in the evening (local time). In the Forex market, currency trading usually starts at 22:00 (GMT) on Sundays, 23:00 Italian time, and ends on Fridays at 22:00 (GMT), always at 23:00 Italian time.

· Low costs. Trading in the forex market does not involve high commissions and fees since the transaction costs in this market are much lower than those associated with trading other assets such as shares. This is due to the OTC nature of the Forex market, which reduces costs per trade. The most significant cost will be the spread, which however will not be very high due to competition between brokers.

· Leverage option. When trading in the Forex market we have the option to leverage and borrow money. This allows you to trade with more money and get more profits (but also more losses). In any case, this allows you to start trading in the Forex market with little capital.

· Transparency. Being the most liquid market and where large volumes of capital are traded, it is very difficult for the Forex market to be manipulated by any agent.

· Presence. The Forex market is a global and decentralized market without physical presence, as is the case in other markets. This allows us to trade from anywhere in the world with a simple internet connection.

Who participates in the Forex market?

In the Forex market the different market participants are divided according to whether or not they act in the interbank market. Those who participate in the interbank market (central banks, commercial and investment banks) are characterized to do so directly on the market. In it currencies really change hands, since only 10% of forex trading is done with a real purpose. In the rest of the cases Forex trading is done for speculation.

Originally the Forex market was accessible to large banks and financial institutions, but in recent years, thanks to the internet, investors and individual traders have grown rapidly, thus constituting an additional participant, even if very small compared to the others.