An Introduction to Forex
Forex is an acronym of Foreign Exchange, which represents a trillion dollar a day off-exchange market. In the Forex market, institutional participants such as banks deal with large sums of fiat money to facilitate international trade and provide financial transactions for export and import, as well as repatriating foreign profits from investments made abroad. These large transactions create small price fluctuations on a daily basis, where both institutional and individual retail investors try to siphon off profits.
Regardless of where we live and how we conduct our business, one way or another, we participate in the global marketplace. A drought in India can affect the sugar price in Brazil or a minor conflict in the middle east can push the international crude oil price sky high. Hence, we want it or not, we are always being affected by the changes in the Forex market.
Why Investing in Forex is So Lucrative?
Thousands of international foreign exchange transactions occur every minute. Hence, the economic law of supply and demand create small fluctuations in the price of one currency against another. Moreover, macroeconomic factors like overnight interest rates set by central banks, changes in employment rates, inflation and thousands of other factors contribute to the valuation of one currency in terms of the other currency, better known as currency pairs.
These substantial volumes of international transactions create ample liquidity in the market that enables investors to buy or sell currency pairs almost 24/7. Additionally, Forex brokers offer one of the best leverages available to retail level traders compared to any other markets in the world. Some prominent Forex brokers allow investors to trade hundred to four hundred times their initial investment, as they offer leverages from 100:1 to 400:1. In practice it means that an investor with a deposit of $100 can trade with as much as $10,000 to $40,000! This kind of highly leveraged trading environment enables investors to magnify their investments in Forex and profit considerably from the minor price fluctuations.
A Market That Never Sleeps
Unlike the equity markets, like New York or London Stock Exchange, the Forex market is always open. Because, by the time the banks in Japan and Australia close down, its already opening hour in Toronto and New York. Besides weekends, the flow of transactions stays consistent throughout the day. Therefore, a profitable trading strategy operated by a team of traders distributed around different time zones or an automated computer generated algorithm can trade in the Forex market round the clock to generate profits.
The fact is that as long as global trade continues, the foreign exchange market will remain as the primary means to facilitate international business and development. This offers investors an opportunity to tap into the vast potential of the Forex market in order to make extraordinary returns on their investment.