Published on February 28, 2014
Forex Trading -by eduCBA
What is Foreign Exchange (Forex)??
• Foreign exchange refers to the exchange of currencies. • It is trading of currencies from different countries against each other. • The FX market is the place where different currencies are traded.
• The foreign exchange market (FOREX Market) is the World's biggest O-T-C market or the "Interbank", market due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24hour period. • More than 90% of all currencies are traded against the US Dollar (USD).
Reasons of Foreign Exchange Trading Click to edit Master textBusiness Operations Global Click to edit Master text styles styles Second level Second level Third level Third level Profit Speculation Brokerage Purpose
Major Currencies Symbol Country Currency Nickname USD United States Dollar Buck EUR Euro Fiber JPY Euro zone members Japan Yen Yen GBP Great Britain Pound Cable CHF Switzerland Franc Swissy CAD Canada Dollar Loonie AUD Australia Dollar Aussie NZD New Zealand Dollar Kiwi
Different Ways to Trade Forex • Spot Market In the spot market, currencies are traded immediately or "on the spot," using the current market price. What is important about this market is its simplicity, liquidity, tight spreads, and round-the-clock operations. • Futures Futures are contracts to buy or sell a certain asset at a specified price on some future date. It is a binding contract between the two parties (buyer and the seller), which allows them to trade a certain amount of currency pair at predetermined price in future time
Different Ways to Trade Forex • Options An "option" is a financial instrument that gives the buyer the right or the option, but not the obligation, to buy or sell an asset at a specified price on the option's expiration date. If a trader "sold" an option, then he or she would be obliged to buy or sell an asset at a specific price at the expiration date. • Exchange-traded Funds Exchange-traded funds or ETFs are an investment fund which are traded on the stock exchanges like shares. They are invested in a single currency or basket of currencies. The investors who are not more inclined towards futures or forex markets uses currency ETF's.
Benefits of Forex Trading Time and place flexibility – As we know the market is open 24 hours each day, so we don’t have to worry about the managing our own time. Highly liquid market – The market is so huge, that it is extremely liquid. Low transaction costs – The transaction costs are determined by the bid/ask spread, is usually less than 0.1%, and in case of large dealers it may be even lower. Margin Based Trading - Once you have funded a margin account with your broker, you can engage in any trading activity you wish so long as you have sufficient margin remaining in your account.
Is Forex Trading Risk-free? Unfortunately No!!! There are some risks which are associated with the Foreign exchange trading.
Exchange Rate Risk This type of risk can arise when there is an Click to edit Master text styles imbalanced supply and demand situation in Second the forex market. Solevel traders have to be Third level careful, in terms of putting limits on trades in the form of stop loss. Interest Rate Risk These are the risks which are related with futures, swap and forward trading. This is due to the fluctuations, maturity gaps and amount mismatches occurred in the trade.
Country Risk This risk is very crucial because of the interference of the government involved in the markets. Sometimes party may receive some unexpected return due to country’s policy and norms incorporated by government.
We Wish you a Happy Currency Trading!!!
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