Saturday, November 17, 2012

Introduction to the Forex Market

By Sam Johnson

The expression "Forex" refers to the Foreign Exchange Market on which currencies are traded. We know the market the way it exists today since the 70's of the last century . Since the market has changed the fixed currency quotes to floating ones, investors and companies found in it an opportunity to make money.

The Forex market is the most liquid market in the world. Today the daily turnover estimates in 3.5 trillion dollars. That means that in every moment that someone wants to buy a certain currency there is another person who sells it. In very rare occasions the price movement forms a gap. That happens in the moment when there are no participants in the market that want to make a trade on the certain price. However, since this happens very rarely we can account it to the exceptions.

The currency market functions 24 hours a day from Monday to Friday. Depending on the time zone the trades go through the main financial centers - London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, Sidney. The biggest movements on the market happen through the London session and the New York session.

In the last decade the group of individual investors and participants in the forex market gets bigger and bigger. The reason for this is introduction to the so called marginal trading and the leverage. With those two everybody can take part in the currency trading even if he does not have a big amount of capital. Most of the cases the forex broker will give the trader a leverage for example 1:100 (1%) which means that the participant can trade on the market with hundred times bigger capital than what he has invested. For example if a trader funds his account with $500 he would be able to trade with $50 000 on the market.

The traders use computer platforms to trade on the forex market. They provide them with the opportunity to analyze the market with applying indicators to their charts that give them a buy or a sell signal. The trading platforms provide also great tools a trader can use. For example, he can draw important support and resistance levels, trends or retracing levels that will help him for the price analysis. Once the trader finds the trend the only thing left is to find an entry point to the market.

There are several types of traders on the forex market. According to their trading system they are divided to investors, position traders, day traders and scalpers. There are also traders that program all of their trading system into a code that is called an expert advisor. That way all of the trading and analysis they do can be automated and hands free. That way the trader is not obligated to stay in front of the computer all day long waiting for a signal. Such automated robots can even be bought even by inexperienced traders and people that don't know much about the forex market.

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