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What is Forex?
Forex or FX stands for Foreign Exchange. It is the world’s largest financial market with governments, banks, corporations and individual investors all taking part in exchanging currencies.
In Forex trading, there are always two currencies involved. They are referred to as a pair, for example Euro/US Dollar (EUR/USD) or British Pound/Japanese Yen (GBP/JPY).
The pricing of a currency pair values the first currency against the other. Therefore, investors can find opportunities from coming price movements by forecasting the currency pair directions.
After your own analysis, you predicted that British Pound (GBP) will gain strength as compared to Japanese Yen (JPY). Therefore, you will buy British Pound and sell Japanese Yen at the same time.
If you predicted that Japanese Yen (JPY) is gaining strength versus British Pound, you will buy Japanese Yen and sell British Pound simultaneously.
Currencies pairs are traded in a certain hierarchy order. Hence, you will use the pair GBP/JPY for the two different trading scenarios mentioned. If the trader wishes to buy Japanese Yen for GBP/JPY, he/she would sell British Pound for GBP/JPY. Buying is usually referred to as “going long” and selling is usually referred to as “going short”.
Unlike other financial markets like the New York Stock Exchange, the forex market has neither a physical location nor a central exchange. The forex market is considered an Over-the-Counter (OTC), or “Interbank” market due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24/5 period. The FX exchange rates are driven by supply and demand.
- U.S. Federal Reserve System (The Fed)
- European Central Bank (ECB)
- Bank of England (BoE)
- Bank of Japan (BoJ)
- Swiss National Bank (SNB)
- Bank of Canada (BoC)
- Reserve Bank of Australia (RBA)
- Reserve Bank of New Zealand (RBNZ)
Advantages of Forex Trading
- Ability to Trade 24/5
- Transactions in the Forex market begin at 5 o’clock local Sydney time, and end on Friday at 17:00 local NY time (EST).
- Market Size and Liquidity
- The currency market is the largest financial market in the world. The liquidity that comes from a market that trades nearly $5 trillion every day enables you as an investor to enter and exit you positions easily. This is an advantage because it means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will as there will usually be someone in the market willing to take the other side of your trade.
- Ability to Take Advantage of Ascending or Descending Markets
- An investor can make a profit in both rising and falling markets, as Forex is always traded in pairs.
- No commissions
- You never have to pay any clearing fees, exchange fees, government fees nor brokerage fees. You simply pay the difference between the bid and the ask prices, which is called the “bid/ask spread”.
- Ease of Entry
- You can get started in the currency market with an account as small as $100 with Anzo Capital. Anyone can take advantage of the
benefits of the currency market.
- Low Required Margin – High Leverage
- With Anzo Capital you can trade on up to 500 times leverage.
- No Middlemen
- Spot currency trading eliminates the middlemen and allows you to trade directly with the market responsible for the pricing on a particular currency pair.