The Foreign exchange market is a place where currencies are exchanged. The exchange of currencies is necessary to conduct foreign business or trade. For example if you are living in USA and want to buy something from France, you have to pay the money in EUR. Similarly a French tourist has to pay in Egyptian pound, if he/she wants to see the pyramids in Egypt. The need to exchange currencies is the main reason which makes currency market, the largest as well as most liquid market in the world. A unique feature of this market is that there is no central market place for the exchange of currencies. Forex trading is conducted over the counter, which means that the exchange of currencies takes place via computer networks all over the world instead of taking place on one centralized exchange.
The Forex trading market remains open for 24 hours a day and for five and half days in a week. The currencies are traded all over the world and Sydney, Paris, Singapore, Hong Kong, Frankfurt, Zurich, Tokyo, New York and London are the major financial centers which cover almost every time zone. This means that the currency trading starts in the Hong Kong and Tokyo as soon as the trading in the USA ends. So the Forex market remains active all the time with price quotes changing continuously.
Currency fluctuations are generally very small and most of the currency pairs move less than 1% in one day. Due to this reason, currency exchange market is a least volatile market; hence many traders rely on the availability of huge leverage to increase the movement in the currencies. In the retail foreign exchange market, the leverage can be as high as 250:1 which is very risky. Due to deep liquidity and round the clock trading, Forex brokers provide high leverage to make the currency movement significant for currency traders.
Availability of high leverage and extreme liquidity have helped to increase the rapid growth of the market and made it an ideal place for Forex traders. Positions in the Forex trading market can be closed and opened within few minutes and can be held even for months. Currency prices depend on supply and demand and cannot be manipulated because the size of the market is so big that even the largest players like central banks cannot move the price at all. The currency exchange market provides great opportunities for the Forex traders. However, in order to succeed, a Forex trader should know the basics of this market beyond currency movements.
The factors in currency trading such as global structure, size and volatility of the currency market have contributed a lot to its rapid growth. Due to the high liquidity, traders are able to place high trade. Traders can place large trades because of the low margin needed by most of the Forex broker. For example, a trader can control a position $100, 000 by investing only $1, 000 in his/her trading account and borrowing the rest from the Forex broker, which makes a Forex market very risky.
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