Foreign Exchange, commonly known as ‘Forex’ or ‘FX’, is the process of exchanging one currency for another currency at an agreed exchange price on the over-the-counter market.
Forex is the world’s most traded market, which has an average turnover of running in excess of US$4 trillion in a single day.
Forex trading is almost similar to stock trading. A stock trader buys a particular counter when they think its price is going to rise and sells the counter when the think its price is going to fall. Similarly a forex trader buys a currency pair when they assume that its exchange rate will rise in future and sells the pair when they think its price is going to fall.However, unlike other stock exchanges forex exchanges do not have a physical location or any central exchange. Instead, these transactions are conducted by the market participants themselves from different parts of the world. Another key element behind forex markets grand success is the fact that forex markets remain open 24 hours a day from Sunday evening through to the Friday night. Professionals would agree, that this 24 hours a day service minimizes the chances of price gapping, which is commonly observed in other stock or commodity markets. Forex markets allow participants to take or leave position at any hour of the day, making it a preferred choice for many professional traders.
While leveraging is a part of many stock exchanges, Forex exchange is completely leveraged. It means that you are only required to deposit a small a percentage of the cull value of your position to place an order in forex markets. Which means that chances of losing or gaining money from your initial capital is significantly lower in forex markets as compared to other markets.
Another factor which enables traders to earn from the forex market is high liquidity. Due to the massive size of the forex market, it is extremely liquid. Even though there are certain lull times when liquidity is below the daily average, in normal market conditions with a click of a button you can easily buy or sell any currency pairs an there will be someone who is willing to take the other side of the trade, saving you from getting stuck in a trade.
And last but not the least, you would wonder with so many positive aspects getting started as a trader in forex markets would cost thousands of dollars. However, the fact is when compared to trading equities, options or futures it doesn't. You can open a forex account with as little as 100$, making the forex market much more accessible to aspiring traders who do not have a lot of start-up capital.