Tuesday, November 20, 2012

Introduction to the Forex Market

By Sam Johnson

The international currency market exist in the way it is today since the 70's of the previous century. The transformation from fixed quotes to changing ones makes it possible for investors and companies to make profit from trading the currency pairs. The word Forex origins from the Foreign Exchange Market and with it we define the currency market.

The most liquid market in the world is the Foreign Exchange Market. Its daily turnover goes up to more than 3 trillion dollars. This means that every time that a person wants to buy a certain currency there is another person who wants to sell it. Sometimes, but very rarely, the price can make a gap which happens when there is nobody on the market that want to buy or sell on the given price level

The market is opened 24 hours a day 5 days a week. Depending on the time zone the transactions are operated and go through different financial centers. The biggest of them are - London, New York, Tokyo and Sidney. The market has more volatility when the New York and the London session open and it is less active in the other two sessions.

As the leverage effect and the marginal trading was introduced on the market, trading forex hasn't been more accessable. More and more investors and people who seek additional income come to the market. Since the forex brokers give leverages of 1:200 and more, currency market can be very lucrative. That kind of leverage will make it possible for you as a individual to trade on the market with 200 times bigger capital from the invested one. For example if you invest $500 yo would be able to trade with $100 000, making your profits from the movements bigger.

The forex brokers also provide trading platforms for the people who want to join the market. The investors install the platform on their computers and with the help of integrated (so-called) indicators they analyze the market and its movements. With those indicators and several other helpful tools (such as support and resistance levels, trends or retracing levels) the traders receive signals that predict possible future movements. That way they decide where they buy a currency pair and where they sell it.

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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