Forex trading can be done over the counter through an electronic network of hedge funds, banks and broker dealers. It does not have any centralized physical exchange like futures or equities. This market has many key advantages. The most important advantage is that foreign exchange market remains open 24 hours a day. The hours are from Sunday 5pm to Friday 5pm New York time. Due to the large network of brokers, dealers and banks, liquidity is a very small issue. Getting in or out of trades is a very smooth process if the market conditions are normal.
Market news broadcast and information are available for the traders and due to the use of the technology; it is fairly transparent to the investors. Some retail dealing firms do not charge commission but they have a bid/ask spread which the investor pays in order to facilitate transaction in online trading. There is a facility of practicing trading by using a demo Forex platform. Flexible contract size is also a big advantage of Forex trading. If you are a new trader, you can trade with small contract sizes where currency price fluctuations are small. You can start trading by putting only $200 in your account.
Some factors make currency prices to fluctuate relative to one another. These factors work together to affect the currency prices. A trader should pay attention to these factors when taking Forex trading decisions because they may have long or short term impact on the market.
Have you exchanged currency while traveling to other countries? If yes, you were trading Forex but many people do not know it. Due to the availability of the high speed internet, this sort of internet based trading is becoming more and more popular to the retail investors. This trading has many names. FX trading, spot Forex trading, currency trading and foreign exchange trading are some of the names used for it. In a very simple language, currency exchange trading can be defined as the simultaneous buying of one currency and selling of another. It can be done for both speculation as well as business purposes. If Euro appreciates relative to USD, you will prefer to buy Euro and sell USD. If the value of euro increases significantly, you can sell Euro back for the USD to get profit but if the value of euro decreases, you will suffer a loss.
It is the retail Forex market that allows you to speculate on the price movements of the currencies. It is the largest market of the world with an average daily volume of around $4.8 trillion per day. Retail Forex trading brokers, hedge funds, investment management funds, central banks, commercial companies, bank and individual traders are the various participants of this market. In the late 90’s it was very difficult for the retail traders to participate in the currency trading because the minimum investment was nearly as high as $10 million. Due to the development of the internet and retail Forex brokers, you can trade Forex with a little sum of $ 2 in your trading account from your own computer.