The name Forex comes from the abbreviation of the phrase "currency exchange". Forex today is the largest international currency market. Despite the long period of its existence, many people do not understand the mechanism of Forex and the basic principles of its functioning.
Distinctive features of the Forex market
Currency is the subject of trading in the Forex market. The dynamics of rates and the ratio of currencies directly determines the profit in the foreign exchange market. Distinctive features of the market are a significant range of lending, as well as a high speed of closing transactions.
The main participants in the Forex market are investors, banks, brokers and funds (for example, retirement funds).
In Russia, the Forex market most often means speculative currency trading using leverage (or margin trading). In fact, making a profit on exchange rate differences is not the only possible goal of Forex operations. They can also be trading, speculative, hedging and regulatory.
Today, daily Forex turnovers exceed 4 trillion rubles. The main volume of operations is concentrated in the London and German markets. About 2/3 of all traded currency is in the dollar. Forex trading is carried out five days a week with weekends on Saturday and Sunday.
Forex market structure
The principles of the Forex market do not depend on the country in which the trades are held. Meanwhile, there are cross-country differences in approaches to trade. The American and Asian sessions are considered to be the most aggressive, while the Australian and New Zealand sessions are considered to be the most restrained.
The principle of trading is as follows: an investor enters into a contract to buy one currency for another. For example, dollars for euros or yuan for rubles. In this case, the investor needs to make a certain amount to his deposit. As a rule, it is less than the required amount, i.e. he essentially takes a loan from a trader to buy currency.
Such a loan is called leverage. In fact, this is the ratio between the amount of the collateral and the borrowed funds. Most of the transactions in the Forex market are made using leverage. It can have different values - from 1: 1 to 1: 500. The most popular and balanced leverage is 1: 100. With such a leverage, the broker's deposit should be 100 times less than the transaction being made. Those. he must have a deposit of $ 1,000 to make trades worth $ 100,000.
After purchasing a currency, the investor's profit depends on the movement of currency rates. If the purchased currency rises, the investor makes a profit, if it falls - accordingly, a loss. The direction of movement of currencies depends on a complex of factors (economic, political, social, etc.). For an investor, the main thing is to correctly predict how the currency will behave, and to have time to buy or sell it.
