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Foreign Exchange for Beginners


Foreign Exchange for Beginners

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In any given situation, say job hunting, it is always a must to know what you got yourself into. Similarly, when you think of investing your money, you don’t just impulsively invest it into something. You have to know the basics: what it is, how it works etc. Similarly, if you are thinking of being a foreign exchange market trader, you have to have proper understanding of what you will be dealing with.

Why the Forex Market Remains Unique

The Foreign Exchange Market is often regarded as truly unique and close to being an ideal market. No other market is comparable to the foreign exchange market because of these factors:

• The volume of exchange.

The foreign exchange market is a growing and the largest financial market in the world. Therefore it is hard to imagine how much assets are being exchanged daily.

• The ability of the assets to be converted easily through buying and selling without worrying about fluctuations in price and loss of value.

This is called the market liquidity. The extreme liquidity of the foreign exchange market enables it to meet financial obligations more quickly and easily because of the number of buyers and sellers who are ready to trade.

This means that you can have the option to liquidate a less liquid (meaning an asset which is hard to sell because of uncertainties regarding its value) to a more liquid asset (an asset which is readily salable because of its high value) because of the large number of participants which are always willing to trade.

• Large number of traders and participants in the exchange of assets.

The foreign exchange market involves trading between large banks in the world, (including, of course, the central bank), governments, corporations, big name institution and currency speculators.

• The foreign exchange market offers convenience.

It is operational 24 hours a day except on weekends. This is to accommodate the large number of the market participants and the amount of assets being traded daily.

• This market is not only limited to Americans.

The Foreign Exchange market is, in fact dispersed worldwide. Any country with a currency and an asset (which can be traded or sold) can take part in this ever growing market.

• Because of the large trading volumes and large number of market participants involved in the foreign exchange market, even a low margin of profit can be really high.

This is much more advantageous than that of another market which offers a higher profit but a fixed income.

• Leverage

This is the term used in finance (thus in the foreign exchange market) which refers to the use of borrowed funds (example is a loan) in order to enhance the potential of greater return to the investor.

Next Page: Foreign Exchange Market

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