The foreign exchange market, simply known as forex, is a worldwide system where people buy and sell different currencies. It is open 24 hours Mondays to Fridays and has no fixed location. It is the world’s largest market, even larger than the stock market. Forex trading is becoming popular lately because of its great promise on profits. However, to survive this system it is best if you learn more about how it works.
Tiers of Forex Market
Traders in this system are categorized into two. Interbank Market refers to the vast network of the biggest banks all over the world. They trade currencies in huge amounts, around 10 to 100 million worth per trade. They set the overall exchange rate for currencies that are followed by the smaller traders.
Over-the-counter Market or OTC market refers to small companies and people who invest in forex trading. Some do it for sport but most of them aim for bigger gains. Nowadays, OTC has become popular because of currency trading brokers that simplify every transaction. Every Aussie forex brokers offer different services, so be sure to choose one that will suit your trading needs.
Factors That Affect a Currency’s Value
A currency’s value is very sensitive to political and economic changes. Forex traders should always keep updated with the latest economic trends and political events to anticipate changes in value. Certain events such as inflation, unemployment rates, oil price hike and other economic issues can increase or decrease a currency’s value. The same goes for political events such as elections, economic agreements and threats to national security.
How to Make Money on Forex
Big companies invest more in buying currencies. Most of them keep track of certain currency pairs to maintain. High-interest rate in a certain currency means that they would earn more from it. Forex traders generally spend a lot on higher interest currencies to earn more profit.
Forex on Travellers
When you are a traveller, then you’ve experienced trading currencies a lot. When visiting a different country, you have to convert your present currency into one that is accepted on your destination. Unfortunately, this type of trade is the smallest among the rest and is located on the bottom part of the currency pyramid. Travellers always receive the worst currency exchange rates compared to trading companies and banks.
Benefits of Forex Trading
Many businesses enter forex trading due to its multitude of benefits.
- Liquidity – Since currency exchange rates are very flexible, there are lots of possibilities to gain profit by simply trading at the right moment.
- Leverage – This feature allows a trader to control more than what you really have. Aside from increasing profits, it also controls your loss at a minimum level.
- Profitable – You can gain profits on both rising and falling currency pairs.
- Accessibility – Because the forex market has no physical location, you can easily access it wherever you are. The market is open for business 24 hours a day from Mondays to Fridays.
- Demo Accounts – You don’t have to fear if you’re a newbie. You can practice your trading skills thru demo accounts without losing any cent.
The foreign exchange market is really an exciting system to learn. Don’t be afraid to venture out and increase your profits thru forex trading.