Forex is short for Foreign Exchange, and it represents a process of buying and selling currencies of the world. From the Australian Dollar to the Japanese Yen, there are a number of currencies up for trading each day in this exciting, relatively new section of the market. Forex online trading takes place in the Forex market, as the name would suggest. This market is quite unique since it is the most liquid market in the world, thus the largest one.
The Forex market is made up of many important individuals. From companies, central banks, hedge funds, investment management firms, retail forex brokers to, of course, the traders. Each one of them plays an important part and contributes to the everyday functioning of this huge market. Forex online trading takes place through over $5 trillion daily transactions on average. This is more than the total of both equity and futures markets.
What is so unique and special when it comes to the Forex market? Well, what particularly stands out about it is that is not dominated by one market exchange. Rather, there is a global network of both brokers and computers from all around the world that tracks its growth and development. This takes a lot of the pressure off, and more importantly, ensures safety and discretion. This helps build trust between the brokers and traders. And as we know, this is the most valuable relationship to create when you are getting into the business of Forex online trading.
The Forex market contains two very important levels. One of them is the interbank market, where large banks are trading currencies on behalf of the clients. The other crucial part is the OTC market, which is short for over-the-counter. Meaning, traders can do their exchanges through online platforms, such as FXVC.EU.
Innovations and Original Approach
This platform is quite unique on the market, despite having years of experience in its pocket. Through the innovative trading system, you can access different assets including currencies. Not only that, but you can track their performance in real-time. Also, there are new ways of using educational tools in Forex online trading.
The Forex market stands out thanks to one other specific feature – it never closes down. It operates 24 hours all around the globe, so there is no need to rush or worry that you will miss something good. This is particularly different from other markets such as the stock market, which usually closes in the afternoon. Other markets, however, are trying something new. For them being competitive and staying on top of their game means closing during the key hours of the trading day. This adds to the suspense and generates a whole new level of engagement with different types of traders.
Forex Trading – the Basics
So, if the Forex online trading is a hit, what are the top currencies on it? For starters, the US dollar is considered to be the most traded currency in the world. It is a part of 85% of transactions, with the euro trailing it with a modest 39%. What makes the dollar persist on the market despite difficulties?
Well, there are several key factors that contribute to it. The US economy is one of the strongest ones on the planet, even in its worst days. Just think of the previous year. The trade war was at the top of the heat, and the US dollar was still able to rule the Forex market. No matter the geopolitical turmoil, this currency shows time and time again that it is here to stay. Clearly, not many things can spoil its worth. The Japanese yen, on the other hand, is considered to be the so-called “safe-haven asset”, due to its stability and high liquidity. The investors usually turn to it in times of hardships on the market.
How did the Forex market come to be anyway? Before World War I, precious metals, such as gold and silver were backing up the currencies. This system did not work during the war, so a new one came to be. First, three new international institutions were created. Those are the IMF (International Monetary Fund), the GAAT (General Agreement on Tariffs and Trade) and the IBRD (International Bank for Reconstruction and Development). They were crucial in the transition from gold to international currencies starting to rely on each other.
The Central Bank
Still, though, the dollar kept its value somewhat secure with the equal reserves of gold in its central bank. You may know it better as the Federal Reserve. Back then, however, when the Forex market just came into the spotlight, it was mostly aimed at governments and larger companies. Today, anyone can do it! You don’t have to be a part of a bigger establishment to fulfill your trading dreams. Many investment firms today offer a unique opportunity for each trader to distinguishes themselves as valued clients on the market of Forex online trading.
So, how does Forex online trading work? The market is the key factor. Not only in terms of being the place for all the transactions but also as a crucial part of determining the value of a certain currency. Though many fractures contribute to it, such as economic and political, everything begins and ends with the market itself.
Currencies are always represented in pairs – for example, USD/EUR. There is also a value attached to it, which represents the amount of which one currency is expressed through the other in that pairing. In addition, each currency alone has a value of its own, which you can analyze through an index. Currencies are traded through lots – micro, standard and mini. Through lots, each currency is different than it would be if you’d, for example, went to the bank and wanted to exchange one currency for another one. Forex online trading is completely different from this transaction, though it applies similar rules when it comes to their main instruments – currencies.
Despite the Forex market working around the clock, it doesn’t mean that whatever you do on it is a done deal. It takes a lot of hard work and thought-out moves to go on behind the scenes, that make up to the final result. In addition, depending on which time of day you engage in trading, there will be a different volume taking place for the currency of your choosing. This is also something to consider when deciding on the timing of entering the Forex market.
A special branch that researches the currency pairs and all that makes them unique is called Forex analysis. This type of study aims to determine which direction will a certain trend go next. This is hard to predict, of course. However, it is also an impending scientific approach and a source of new development as time passes and new things on the market keep emerging.
So, traders, as well as companies and hedge funds, are using Forex analysis to decide on their particular trading strategy. There are different ways to do this. While some analysis is manual while others require the use of computers and software that researches historic data. Either way, each independent trader is able to choose their own approach to the matter, with the combination of the two sometimes working the best.
Forex analysis aims to help you make a profit by predicting the currency pairs’ movements. There are currently over 150 global currencies, which makes this method somewhat tricky to come by. The most exciting ones are the euro (EUR), the British Pound (GBP) and the Australian dollar (AUD). Trailing close behind them are the Japanese yen (JPY), Canadian dollar (CAD), then the Australian dollar (AUD), and Swiss franc (CHF). Other currencies are not obvious right away but are also quite important. We just didn’t mention them because of their lower volume. You can check them out for yourself on the FXVC.EU a platform that provides the full list of currencies available.
Bunch of other factors is affecting the currency levels, too. Name them, from price movements to political and economic events. A country’s gross domestic product growth is also an important fact to note. Besides them, there is the employment data, inflation, central bank statements and other factors that contribute to your experience in Forex online trading.
There are three most common types of this analysis:
- Technical analysis – it assesses the past price movements of a certain currency. It aims to predict where it will go next so you can assume your strategy. This way you can recognize patterns more easily
- Fundamental analysis – the fundamental analysis examines the factors that are affecting the economy of a certain country. From inflation rate to GDP (gross domestic product), this analysis tries to predict the future factors which may form and affect a certain currency
- Sentiment analysis – a sentiment is showing the current mentality on the market. It shows if people are buying or selling a particular currency, and which factors may be contributing to such behavior. This is otherwise known as crowd psychology. In other words, people tend to reenact the behavior of others which they admire or are in a group with.
The currency market is certainly one of the most exciting parts of any market. With many factors that contribute to it daily, it is no surprise that it is always open and welcoming to traders of different origins and trading goals.