Forex trading also known as forex exchange market or currency market is a world market for the trading of currencies. It is the largest market in the globe with the main participants being the most the leading international banks, governments, central banks, Commercial Corporation and other institutional investors. Individuals also participate in the trading even though their stake is small compared to other participants.
The most liquid financial market has been the Forex exchange market. One buys a quantity of one currency by paying with some amount of another quantity. Nowadays the most developed countries have allowed the trading of derived products which include futures and options on futures in their exchanges but such countries ought to be having convertible capital accounts. The risk of involving the derivative products is that they have capital control. Over-the-counter market is the platform from where both brokers and dealers negotiate directly.Investors divide the market into levels of access. As one goes down the levels of access, spread increases as a result of volume.
From the top;
• Interbank market-Made of securities dealers and large commercial banks. Notable about this level is the spreads (different between ask and bid price) are razor sharp and not known to players who are outside the circle.
• Smaller banks.
• Large multi-national corporations.
• Large hedge funds.
This market has unique characteristics which includes;
• It has geographical dispersion.
• It uses leverage in enhancing profit and loss margins.
• It operates 24 hours a day except for weekends.
• It has large trading volumes.
Forex trading involves very high risks to one’s capital invested and can lead to loss hence it is always advisable for one only to spend what you can afford to lose. This calls for one to have a vast knowledge of the risks involved. Such companies as CMC market that provides a trading platform for such trading have striven to educate prospective investors through local seminars and free webinars on how trade, managing the risks and trading strategies. Most of them have even provided a practice account where one simulates trading before venturing in real-time trading. This will help one to gain handy experience in the trading as one will master even all the terms used in the trading. However this trading faces several challenges which one have to be aware of including; commodity fraud, forex scams and of late, delayed the processing of withdrawal requests from forex brokers. To help one be successful in forex trading, below are some of the basic things one opt to know:
• You should study the market, fundamentals, forces influencing market trends and all the technical factors leading to the price actions.
• Follow your judgment in making decisions. One should not be affected by other people’s opinions though it is advisable at the same time to discuss your views concerning the market with others.
• It is hard to know of all the financial activities running in the world so focus on one single currency pair and expand it as your skills become well with time.
• Recognise all your failures and reduce if not eliminating them. Do not fight the markets as one should be humble and patient.
• Forex trading is a business involving all business risks hence unless one has enough patience and finance resilience to adhere to a long-term plan, it is advisable not to go against the markets.
• The trading is all about probability hence position yourself in a manner to reduce the losses and have money management skills.
• Do not invest in inferior goods.
• Restrain your greed, panic, fear, euphoria and excitement.
• Only do what you understand and not trade by hearsay, rumours and without a full understanding of both negative and positive repercussions of what you choose to do.
With online trading, it is now easy and efficient in trading. It makes the trading market to accommodate everyone adequately. However, some trading companies do not allow involvement of the trading’s to some regions in the world.