Even though the forex market is the largest financial market in the world with a trading volume of $4 trillion a day, many traders remain unaware of its existence, instead focusing on retail trades, leaving the world of forex to be a relative enigma. Its status as an enigma derives from the fact that forex only hit the mainstream a decade or so ago. Beforehand, it was usually the plaything of financial institutions, multinational corporations and secretive hedge funds. Now, however, anyone can trade forex, so, let’s decode the mystery and answer some of the most frequently asked questions about forex:
“What’s So Different About Forex?”
Unlike other so called ‘traditional trading options’, the forex is not traded on a regulated exchange, and all members trade with each other on credit agreements. This makes forex both the largest and the most liquid financial market in the world. Although it seems a little ad hoc and dangerous, it works very well, with self regulation providing a good level of control.
As well as this, many people prefer forex markets because there is no limit on position size and no insider trading regulations, particularly as much of the data that influences the markets is leaked days in advance of the official announcement. The sheer size and scale of the market make it the most active and easily accessible in the world.
“What Am I Really Selling Or Buying?”
Although this may seem like a hard concept to grasp, you aren’t actually buying or selling anything in the forex market as it is purely speculative and no physical currency ever changes hands, with all trades and profits being distributed via computer systems.
Although designed primarily for banks and large financial institutions, forex has now become accessible to all investors and, although these institutions still use the markets to conduct their transactions that involve foreign investors, this only accounts for just under a quarter of the market, with just short of 80 percent of all transactions being based on speculative price movements. Remember, however, just because transactions are entries onto computers and do not involve physical cash changing hands, this does not make them any less real.
“How Can I Get Involved?”
The increasing popularity of forex trading means that getting involved in the markets is easier than ever before. Firstly, it is wise to make sure you know exactly what you’re doing before you begin, as jumping straight in at the deep end can be a costly error. There are two ways that you can do this, and both are generally either free or low cost.
Firstly, make sure you increase your knowledge bank. There are a number of great research tools available that are forex specific, but if these are too complicated for you to handle, start by reading relevant news articles and assessing them against charts that show price movements. Once you’re happy with this, you’re up to stage two: opening a demo account.
A demo account is the perfect try before you buy feature. Here, you can test what you’ve learnt before risking your own money. This way, you can try the forex world and see if it really is the right place for you.