How Forex Trading Market Works?

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In the foreign exchange market, commonly referred to as Forex is a financial market where currencies are traded. Forex traders exchange the currency they expect to hold or reduce their value in the currency, which they expect to rise. For example, if an investor believes that the dollar will remain unchanged while the growth of the Euro in terms of value, they will trade their dollars for Euros. If the Euro rises, the investor will exchange Euro for dollars, more American money back than they put into trade.

 

Largest Trading Market in the World

Forex

The forex market is the world’s largest single financial market, three times more than any other stock and futures markets combined. It dwarfs giants like the New York Stock Exchange; nearly four trillion US dollars in the amount of currency traded daily in the Forex market, compared to fifty-five billion dollars exchange on Wall Street. The big banks, corporations and national governments exchange with small investors and traders, hoping to scalp profits from the market.

 

Forex has no Central Location

Forex Trading

The Forex market has no central location. Small brokerage transactions are carried out and all currencies are exchanged by banks. While currency trading is done all over the world, almost 35% of foreign exchange trading takes place in London, New York and Tokyo behind in 17% and 6%, respectively. Because of its global nature, the Forex works 24 hours a day, six days a week.

 

Traded Currencies

Forex Image

There are a lot of different currencies traded on the Forex market, but five of the most common are the US dollar, euro, Japanese yen, UK pound, and Swiss franc. The US dollar dominates the market, making more than eighty percent of the funds traded.

 

Risk of Investment

Forex

Individuals who are considering investing in the Forex market should be aware of the risks. Despite the volatility, liquidity and own the Forex market size makes it an attractive option for investors, the possibility of loss is as great as an opportunity for profit. The foreign exchange market is particularly sensitive to world events, ranging widely variable, such as geopolitics, natural disasters, and the economic prospects of countries.

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In addition, individual investors are generally traded on margin tend to buy foreign currency credit-sensitive magnifying their profits and losses. Forays in the Forex market is best done by investors who have studied the market carefully consider their risk tolerance, and are in a financial position to bear the losses when they come.

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