Exchange market, known as Forex or FX, is the largest financial market in the world. Its turnover exceeds 4 trillion dollars and in the day that more than 30 times larger than the combined volume of all stock market exchange in the US.
«Currency exchange» means the simultaneous selling one currency and buying another. Exchange usually are traded in pairs, for example Euro/US dollar (EUR/USD) or US dollar/Japanese yen (USD/JPY).
There are two reasons to buy and sell currencies. About 5% of daily turnover of the Forex accounts for companies and government institutions that buy and sell goods and services in another country, or must convert profits made in other countries, in national currency. The remaining 95% of the turnover is a transaction for profit, also called speculative operations.
the Greatest interest for speculators are the most common (most liquid) currencies, i.e. the «main». Today, over 85% of all deals are in the main currencies, which include the US dollar, Japanese yen, Euro, British pound, Swiss franc, canadian and Australian dollars.
Trade round-the-clock market Forex trading begins each day in Sydney, and then moves the globe following the light day and the beginning of work of the main financial centers of the first to Tokyo, then London, and new York. Unlike other financial markets, Forex traders have the opportunity to play on the fluctuations of the âàëþòóûõ prices, caused by economic, social and political events at any time of day or night.
the FX market is considered an over the counter, or «inter-Bank» market, because each transaction is executed between the parties by phone, or via electronic networks. Trading Forex is decentralized and not subject to the restrictions exchanges, as it happens in the stock or futures markets.
at first sight, reading currency quotes may seem difficult, however, everything will fall into place when You remember two basic rules: 1) the first in a pair is the base currency, and 2) the value of the base currency is always equal to 1.
the US Dollar - Central currency market Forex, and so is the base for many of the quotations. For major currencies are accepted pair USD/JPY, USD/CHF and USD/CAD. Data, like many other quotations, defined as the price per one US dollar (USD) in units of the second currency in the pair. For example, the quotation USD/JPY 120,01 means that one US dollar equals 120,01 the Japanese yen.
When the US dollar is the base currency, with the increase of quotations of the growing value of the dollar relative terms, and the second currency is falling. If the quote already mentioned, the pair USD/JPY will rise to, say, 123.01, the dollar will become stronger, because it is now possible to buy more yens.
There are three exceptions to this rule are the British pound (GBP), Australian dollar (AUD) and the Euro (EUR). In respect of such currencies, everything happens Vice versa: quote 1,4366 GBP/USD means that one British pound equals 1,4366 USD.
In these three pairs, where the US dollar is not the base currency, growth of quotations means the weakening of the dollar, since the purchase of the base currency unit, whether pound, Euro or the Australian dollar would need more dollars.
in other words, the growth of quotations means strengthening of the base currency and Vice versa, - reduction of quotations testifies to the weakening of the base currency.
Pairs, which lack the US dollar are called cross-currency fluctuations, but the principle remains the same. For example, if the quote EUR/JPY 127,95, one Euro is 127,95 the Japanese yen.
in The Forex market You often contain double quotes, consisting of a double price - purchase and sale. The first - the price at which You can buy the base currency (simultaneously selling other currency), and the second - sale price of the base currency (and purchase of the second currency).
If You are interested in trade currencies online, for Your information, You should be aware that the Forex market has the advantages of the stock market.
Round the clock trading
The major advantage of Forex before the stock market is-the-clock work in real time. Regardless of time of day, the Forex market there are always buyers and sellers who actively trade in foreign currencies. Traders react to the release of important news instantly.
Trading in us stocks outside the opening hours of the stock exchange involves several limitations. The stock market there are electronic systems ECN (electronic Communication Networks), in other words, the system ñâîæäåíèÿ buyers and sellers. However, there is no guarantee that the parties come to agreement, and sign the deal at a reasonable market price. It often happens that traders are waiting for the next day's opening of the market to a more narrow spread.
the High liquidity
the Daily volume of transactions on the Forex 50 times the total volume of transactions on the new York Stock exchange. Liquidity of the Forex market, especially major currencies, guarantees the stability of prices. Traders always have the option to open or close a position at a fair price.
Due to the low volume of the stock market, liquidity risk is considerably high, and is expressed in the wider spreads or heavy traffic rates.
the Leverage 1:100
Online Forex dealers usually provide the leverage 1:100 or 1:200, which substantially exceeds the standard margin of 1:2, proposed by stock brokers. With the leverage 1:100 enough to have a margin size of 1000 dollars and to open a position per 100 000, i.e. the collateral is only 1%.
this increased risk is not suitable for everyone. However, leverage is a powerful tool for the creation of profit, and is an important and necessary component of the Forex market. Average daily price movements of major currencies does not exceed 1%, and the share price is likely to change in one trading session on 10%.
Most effective way to control risks while trading - using margin. It is recommended to carefully adhere to the system of trade, and consistently apply the orders of the «limit» and «stop-loss». Create and firmly stick to your system, where there are strict rules and no place uncontrollable emotions.
Low cost per transaction
Trading Forex is beneficial both in terms of commissions, and in terms of the implementation cost of the transaction. LiteForex does not charge ANY Commission or any additional cost, while still offering traders access to all the necessary market information and instruments. On the other hand, the Commission on stock market is from 7.95 to $ 29,95 for a deal when working with online brokers, not providing information services (so-called discount brokers), and up to $ 100 and more - obese brokers who in addition to trading and provide information support.
Another important point is the width of the spread. Regardless of the size of the transaction, the spread on Forex is usually 5 or less items (the item is 0,0001 cents). In most cases, the width of the spread in a transaction at Forex is less than a tenth of spread stock transactions, the minimum width of the latter - at least 0.125 (1/8).
the Possibility of profit in the growing and shrinking market
In each open position on Forex investor takes a long position in one currency and short the other. Take a short position means to sell the currency in expectation of a decline in its price. Profit equally just as the growing falling market.
the ability to sell a currency without any restrictions, is an additional advantage of Forex before the stock markets. Because, the U.S. stock markets is much more difficult to take a short position of the rules of Zero Uptick, which prohibits investors to sell share uncoated, if the price of the earlier transaction is not equal to or not less than the price short sale.
the Global currency market is the largest and most active in the world. The Forex market is open round the clock, the daily turnover of which exceeds more than $ 1 trillion.
in addition, the Forex market has many advantages before foreign exchange futures contracts. Differences between those tools a lot, starting from the «ideological», such as history, the circle of traders that use those or other products and relevance of the modern foreign exchange market, ending with more material, such as transaction cost, margin requirements, liquidity, usability, and technical support and training services offered by the relevant brokers. In more detail the differences discussed below.
• Greater volume = higher liquidity. Daily volume of currency futures on the CME is 1% of the total volume of deals on Forex. Incomparable liquidity is one of the many advantages of the Forex market over currency futures. Every professional who specializes in Forex can say that in the early 1970's cash capital was on top of the dawn of modern money markets. Today, traders, regardless of the risk profile, have full access to many features of the Forex market.
• compared with currency futures, Forex market is characterized by a narrow spreads. Transforming the price of futures to compare it to the spot market, You can easily notice that in the example above, the futures quotation 0,5894 - 0,5897 pair USD/CHF is not equal to the spot 1,6958 - 1,6966, i.e. 8 points against a standard 5 points on Forex.
• Forex leverage more, and requirements to the size of the margin below. When currency futures contracts there are two types margin: to support day-positions and transfer the item exchange between sessions. Margin is usually depends on the size of the transaction. LiteForex.org provides clients with trading in currency, a common requirement in relation to the margin, regardless of size, position holding time and the time of day.
• Uses universal terms and quotes. Quotation currency futures are opposite to prices on the spot market. For example, if the spot price for USD/CHF pair equal 1,7100/1,7105, futures equivalent is 0,5894/0,5897. Such an approach is typical only for futures transactions.
Read the quotations of currency futures is complicated by the fact that they take into account the price of forward Forex , which includes time, interest rates and the difference of interest rates for different currencies. Forex similar amendment, mathematical calculation or accounting interest rate component is not required.
• Transactions made via LiteForex.org not subject to retention of the Commission. Currency futures include additional payments: transaction fees, exchange charges and Commission payments for clearing settlements, therefore, considered to be rather expensive. Such payments quickly accumulate, reducing the income.
on The other hand, foreign currency futures contracts are íåðîòúåìëåìîé part of a vast market that has undergone significant historical changes over the last decade.
• Trading currency futures contracts (IMM International Monetary Market), was first opened at the Chicago Mercantile exchange (Chicago Mercantile Exchange) in 1972.
• These contracts were created directly for professionals, and accounted for 99% of the total volume of the currency market.
• while some individuals speculating in currency futures, highly skilled and trained experts prevailed on exchanges.
• Currency futures not become a centre of world trade currency, and acted as a support tool (compared with the market of the cash goods), more suitable õåäæåðàì and arbitration traders, âûèñêèâàþùèì small and short-term imbalance between cash and futures prices on the currency.
• These differences do not represent a cyclical phenomenon, and soon gone forever. Less and less opportunities to arbitration, and if they appear, they immediately rush mass of professional dealers and window immediately slams.
changes significantly reduced the number of professional traders operating currency futures c, and virtually destroyed the possibility of arbitrage between Forex and futures, and now pave the way for a more organized markets. Lack of opportunities to play on the differences between the markets drove income traders of currency futures, simultaneously opening the floodgates to private investors for trading operations on the Forex market.
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