The worldwide market where currencies of different countries are exchanged is called Forex of FX market. Forex is a decentralized market. It works all around the world that’s why it’s a global market.
On the other hand a separate market for each currency pair exists. Any currency pair has its own price. The currency pairs may act as if they are completely independent on each other, but there is some correlation.
If any country in not doing very well economically the currency price of that country will drop against the currency prices of other countries. Other countries may be even in more difficult economic situation, the price against the currency of these countries will increase. For instance the US dollar is falling against the Euro for a long time by now, however the same dollar may be rising against the Japanese yen.
The big participants who can influence the currency prices are banks and large financial institutions. These financial institutions hire professional Forex traders who trade for them. Those days when only big players could afford to trade currencies are over. Today anybody can get involved in Forex.
High speed Internet connection is recommended for anyone who wants to try to trade in Forex. Dialup Internet connection may not always be the best choice. That can lead to frustration. You can lose money by not being able to react to fast price changes.
The most important thing is to find a right broker for you. Brokers usually offer quite high leverage. A Forex broker can give you 200 leverage for example. That means you can trade a mini lot of 10,000 units by investing only $50. The rest amount is covered by your broker. That’s the reason why Forex is so popular; anybody can open a mini account with a couple of hundred dollars.
Another advantage of Forex market is its high volatility and liquidity. Liquidity of an investment measures how quickly you can convert it into cash. Since it is cash itself is being traded in Forex it’s high liquidity market. Liquidity has another meaning. It is how often you can buy and sell. In Forex you can do it always. In stock market you have to wait some time for some stocks.
Market volatility is a measure of how often the price changes. For foreign exchange market the price changes quite often. High volatility and high liquidity makes the foreign exchange market very attractive but at the same time it’s a very risky market. Forex presents an opportunity of a very lucrative business. Large profit in relatively short time attracts most people to trade currencies. On the other hand only those who prepared to work hard and acknowledge the risk, they are the ones who make money consistently.
Many traders use technical indicators to trade in Forex. The goal of such technical analysis is to predict the price movement direction in the future.
But to become a profitable trader you also need to know about worldwide events that influence the currency prices. The knowledge about these events can be useful even if you are using only technical analysis. You can close your orders before the major news releases.
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