What is Forex ?
Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world’s currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion. Forex trading in simple terms is the trading in currencies from different countries against each other; for example the US Dollar against the Euro.
Anyone who deals with a foreign country – be it a holiday there, or wanting to purchase something from that country or pay for a service, generally requires the currency of that country to do so. For example, to pay for your college fees at Dubai, I need to make the payments in UAE Dhirams as Indian Rupees are not accepted there. Of course, I could pay in US Dollars too, as it is accepted almost everywhere, but that is a different story. So, in order to make this payment, I would have to buy UAE Dhirams by paying the equivalent amount in Indian Rupees. Remember all those signs stating ‘Foreign Currency Sold / Exchange here’; well, that is where I give the Indian Rupees and get UAE Dhirams in exchange. Now for these brokers to be able to give me UAE Dhirams, they need to buy the same – this is done in the foreign exchange market – the largest, most liquid financial market where currencies worth over $4 trillion are exchanged daily. One of the most fascinating things about this market – there is no brick and mortar marketplace for Forex trading. Every transaction is done electronically over-the-counter. Unlike the stock exchange, the Forex market remains open round the clock with currencies traded across every time zone, five days every week.
The foreign exchange market is the “place” where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business. If you are living in the U.S. and want to buy cheese from France, either you or the company that you buy the cheese from has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) into euros. The same goes for traveling. A French tourist in Egypt can’t pay in euros to see the pyramids because it’s not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate.
The modern foreign exchange market began forming during the 1970s. This followed three decades of government restrictions on foreign exchange transactions under the Bretton Woods system of monetary management, which set out the rules for commercial and financial relations among the world’s major industrial states after World War II. Countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed per the Bretton Woods system.
Some Unique Features of Forex Market
- Its huge trading volume, representing the largest asset class in the world leading to high liquidity.
- Its geographical dispersion.
- Its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York).
- The variety of factors that affect exchange rates.
- The low margins of relative profit compared with other markets of fixed income; and
- The use of leverage to enhance profit and loss margins and with respect to account size.
The currency carry trade is a strategy in which a trader sells a currency that is offering lower interest rates and purchases a currency that offers a higher interest rate. In other words, you borrow at a low rate, and then lend at a higher rate. The trader using the strategy captures the difference between the two rates. When highly leveraging the trade, even a small difference between two rates can make the trade highly profitable. Along with capturing the rate difference, investors also will often see the value of the higher currency rise as money flows into the higher-yielding currency, which bids up its value. Real-life examples of a yen carry trade can be found starting in 1999, when Japan decreased its interest rates to almost zero. Investors would capitalize upon these lower interest rates and borrow a large sum of Japanese yen. The borrowed yen is then converted into U.S. dollars, which are used to buy U.S. Treasury bonds with yields and coupons at around 4.5-5%. Since the Japanese interest rate was essentially zero, the investor would be paying next to nothing to borrow the Japanese yen and earn almost all the yield on his or her U.S. Treasury bonds. But with leverage, you can greatly increase the return.
Technical traders use charting tools and indicators to identify trends and important price points of where to enter and exit the market. Use the chart below to analyse the currency pair or instrument of your choice, change the time period, and explore a number of indicators.
Staying abreast of ever-changing conditions in the financial arena can prove challenging, especially when more than one security or market is involved. As an industry leading forex and contract for difference (CFD) brokerage firm, Trade Winx understands the active trader’s need to reference timely pricing data and remain cognisant of evolving markets.
In order to help traders and investors accomplish this task, Trade Winx presents Forex Charts, a web-based charting application covering an extensive collection of securities and asset classes.
Forex Charts: Features And Functionality
Forex Charts application gives traders the ability to create fully customised price charts, making the advanced study of a security’s price action possible. The following features are readily accessible via Forex Charts:
- Chart Types: Choose from a variety of formats including bar, candlestick, Heikin Ashi, line, area, Renko or point and figure chart types.
- Customisable Periodicity: Fully customisable intraday intervals are available, as well as daily, weekly and monthly timeframes.
- Instrument Comparison: Easily compare the performance of multiple instruments or indices using price overlays through utilising the “add symbol” function.
- Indicators: A robust suite of indicators stands ready and available for advanced technical analysis. In addition, a comprehensive selection of fundamental data items are handily included in the charting study.