Forex (foreign exchange) is simply the act of changing or trading one country’s currency into a different currency for the purpose of commerce, profit-making or tourism. The forex market is a commercial/global environment where financial instruments like currencies, stocks, commodities, CFDs, indices, precious metals, and securities at large are traded.
The market is known as the largest and most liquid financial market in the world with a record of over four trillion dollars as average trade value per day.
Being the largest traded market in the world with regards to cash value, all transactions in the forex market are conducted on either a spot or forward basis while being open 24 hours a day from Monday to Friday excluding holidays. Forex can be carried out by anybody, be it an individual, a forex trader, an investor, or a firm. There is no centralized marketplace where forex transactions are carried out since all trades are executed over the counter, around the clock.
When trading forex in the forex market, a trader is either buying or selling a particular country’s currency. In this system of trading, there is no exchange of physical money from one individual to another. The forex market is basically an electronic market where forex traders take a trade position in an explicit currency with high expectations of making increased returns/ profits from the upward movement and strength in the currency being purchased or the downward movement and weakness of the currency being sold.
Forex trading in today’s world is seen as an easy venture. Trading in the foreign exchange market can be done through various channels and not only a one-stop shop. There are a vast number of channels through which traders and investors can take in order to carry out forex related trades. Most trades are conducted through dealers and financial centres like brokerage firms (forex brokers). These brokers provide a host of electronic networks where forex can be conducted, they provide trading platforms, trading tools and managed trading accounts that portrays a user-friendly/beginner-friendly environment for the trade of financial instruments.
BENEFITS OF FOREX TRADING THERE IS A HIGH DEGREE OF LIQUIDITY
Liquidity is simply the ability for a financial asset to be easily converted into cash without any form of price discount. In forex trading terms, this means that there is a higher possibility of moving a large amount of money when trading forex with limited price movement.
LOW TRANSACTION COST
In forex trading, there are no commissions and fee from brokerage firms. There is also an availability of low transaction since all trade operations are built into the price (spread). Forex brokers make profits in forex trading from the spreads. This takes away the need for extra charges by forex brokers.
ABILITY TO MAKE PROFITS FROM RISING AND FALLING PRICES
The forex market is dynamic in nature. This means that it experiences a lot of movements and fluctuations with no form of restrictions. A forex trader can make profits from selling his asset during an increased price and subsequently purchase an asset during a decline.