FOREX Market (Explained & Advantages for Traders)

The FOREX Market (Foreign Exchange Market) is the international market, by which currencies can be traded. It is by far the largest market in terms of volume traded (with more than $4 trillion traded daily.) The FOREX Market operates 24 hours a day on weekdays, and is closed on weekends, though the over the counter (OTC) FOREX Market still trades on weekends. People access the FOREX Market for reasons other than profitable trading. For example, if you live in the USA and are going on holiday to Spain, then you would need to purchase Euros with your dollars (you are exchanging American dollars for Euros.)

The FOREX Majors are the most commonly traded currency pairs (EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD.) Currency pairs are also present in other forms of trading, such as binary options or spread betting. In spread betting, you earn or lose a predetermined amount of money per point the stock (e.g. currency pair or commodity) goes up or down (this is dependent on whether you took a long or short position.)

In binary options, you are speculating on the future value of a stock at the end of a given period of time (e.g. 1 minute.) You can either place a put (down) or call (up) order. If you are correct, you get up to 88% on your initial investment. If you are wrong, you lose 100% of your investment.

In addition to binary options trading, FOREX market also allows regular AKA Vanilla Forex options trading. These contracts can generate profit in the same way as binary options do, but the profit and loss aren’t predefined and depend on how well the trader predicted the direction and the extent of price action.

There are several advantages to trading the Foreign Exchange Market. Firstly, it is a highly liquid market (especially for the major currency pairs.) This means that there are always a large number of people looking to buy and sell a currency. Secondly, it is very rare for a currency to lose all of its value (thought this has happened due to hyper inflation.) It is much more common for shares in a company (such as Apple or Microsoft) to lose all of their value (if the firm declares bankruptcy) than it is for a currency to lose all of its value. This means that there is less risk in trading currencies (conventional trading) than there is in trading shares in a publically listed corporation.

As the FOREX Market operates 24 hours a day (on weekdays), you can trade the market whenever you have some time. This makes trading possible for people who work long hours during the day (when the stock market is open.) The continuity of the Foreign Exchange Market also means that the risk of gapping is much smaller than it is for stocks.

It is possible to trade the FOREX Market with only a small amount of funds (some brokers have a minimum deposit of less than $200.) This makes trading much more accessible, and allows traders to trade with limited risk.

The FOREX Market is ideal for many traders, due to the above advantages. However, investors may prefer to purchase shares in a company, as there is the potential for receiving a dividend payment. Whenever you trade any market, you should be aware of the associated risks, and you should never risk more capital than you are prepared to lose.