What is the forex market and what is the nature of the market? That is what this article would be centred on. There are a lot of complications in trying to understand the market, the different levels of the market, the participants of the market, how to trade the market, and lots more.
WHAT IS THE FOREX MARKET?
The market is defined as a medium for the exchange of foreign currencies with the aim of making some profits. The structure of the market is such that one can benefit from the ever-fluctuating nature of the market. Although some nation’s economy can be said to have low volatility (the degree at which the value of a currency fluctuates), but no single currency can escape fluctuation. To this end, traders seize the opportunity to make some profit as fluctuation plays out in different forms; either by buying or selling currencies.
The market is the largest market in the world and has a turnover of about 4 trn US dollar on a daily basis. It is a decentralised market and trades for 24 hours every day except on weekends. To make a profit in the market can be said to be as easy as losing money in the market too. As a result of this, it has been categorically stated that the rate of loss in the market is as much as 90%. To be a part of the 10% success of the success market, there is the need to put in effort into learning about fx and developing a winning trading strategy.
The commodity of the market is currency. These currencies are paired before they can be traded in the market. The aim of pairing is for the trader to know the particular money that can be taken in exchange for a particular currency. Take GBP/AUD for instance; GBP is the British pound and the AUD is the Australian dollar. Putting two of them in a pair means GBP is what can be taken for a specific amount of AUD in a GBP/AUD trade and vice versa.
HOW TO TRADE CURRENCIES IN THE MARKET
Basically, traders in the market trade to make profits. A trader buys a currency hoping that its value would appreciate. If the value of that currency appreciates, the trader can sell it off at a higher price to make some profits. When a trader sells a currency, the trader is hoping that the value of that currency will depreciate, after which he or she will buy it back at a cheaper rate hoping that its value will increase again for him or her to sell it off again and make some profits.