The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. The main participants in this market are the large international banks, financial institutions such as asset managers, pension funds and insurance funds, and global corporate entities. Financial centres around the world function as anchors of trading between a wide range of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The average daily global turnover in the FX markets is over $4trillion.
The primary reason the Forex market exists is to facilitate international trade and investment by giving businesses the ability to convert one currency into another. For example, a European business can import goods from Japan and pay in Japanese Yen, even though the business is based in Europe and operates in Euros. The Forex market also provides a vehicle for speculation in the value of currencies, the carry trade, and speculation based on the interest rate differential between two currencies.
There are three types of trading, speculation, hedging and arbitrage. Foreign exchange speculation relates to the buying or selling (going long or short) a particular currency pair, with a view to profiting from future price fluctuations. This type of trading is conducted by both institutions and individual traders on a daily basis.
If a trader or organization expects the Euro to rise in value in relation to the US Dollar they would enter a trade on a Euro/US Dollar trading pair called EUR/USD. This is not only buying Euros, but selling US Dollars concurrently, therefore specifically trading Euros against US Dollars. It's called going long on EUR/USD.
If the Euro increases in value against the US Dollar, the trader can close the trade, resulting in an immediate profit.
Changes in values are recorded in pips, which are the fourth and fifth figures of an exchange rate, regardless of the position of the decimal point (with a few exceptions resulting from historic “market convention”). For example, in GBP/USD, 10 pips would be represented by 1.65100. In USD/JPY, 10 pips would be represented by 101.100. Note, as an example of an exception, in USD/JPY, it is market convention to always assume there are 3 figures before the decimal place, so if USD/JPY was 98.990, we would view the price as 098.990 and refer “98 big figures” and “99 pips”.
Foreign exchange trading is conducted through a FX brokerage – for instance VARIANSE, who receives prices and liquidity from over 20 Tier 1 Banks, Non-Bank Liquidity Providers and High Frequency Liquidity Providers.
> Trading can be done from anywhere in the world with only an internet connection and a computer.
> Highly liquid market place, making it easier to open and close positions at the price you want.
> Flexible trading hours; continuous operation 24 hours a day 5 days a week.
> Greater availability of leverage to enhance profit margins relative to account size than compared to other markets.
> No inherent market bias like the bullish bias stocks, this means greater opportunities to profit from the volatility in both rising and falling markets.
> Ease of accessibility and low start-up costs, open an account with as little as US$ 500.
The benefits are numerous, and having the right broker and technology is key to success, which is why VARIANSE, is the preferred broker for Institutional and Retail traders globally.
Our key differential is that our founders not only have deep institutional e-FX industry experience, but additionally have rich experience in trading technology development, low latency systems and market data. Consequently, we have poured all of our collective experience into developing custom trading solutions and integrated them with a deep web of liquidity to ensure ultra fast execution and razor sharp pricing. Our ultimate goal being to provide an institutional trading experience to traders of all levels.
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