Forex Trade
What is Forex (FX)?
Forex (FX) refers to the marketplace where various currencies and currency derivatives are traded, as well as to the currencies and currency derivatives traded there. Forex is a portmanteau of "foreign exchange." The forex market is the largest, most liquid market in the world by trading volume, with trillions of dollars changing hands every day. It has no centralized location, rather the forex market is an electronic network of banks, brokers, institutions, and individual traders (mostly trading through brokers or banks).
Forex Pairs and Quotes
When trading currencies, they are listed in pairs, such as USD/CAD, EUR/USD, or USD/JPY. These represent the U.S. dollar (USD) versus the Canadian dollar (CAD), the Euro (EUR) versus the USD and the USD versus the Japanese Yen (JPY).
Forex Lots
In the forex market currencies trade in lots, called micro, mini, and standard lots. A micro lot is 1000 worth of a given currency, a mini lot is 10,000, and a standard lot is 100,000. This is different than when you go to a bank and want $450 exchanged for your trip. When trading in the electronic forex market, trades take place in set blocks of currency, and you can trade with whatever size you want within the limits allowed by your trading account balance. For example, you can trade seven micro lots (7,000) or three mini lots (30,000) or 75 standard lots (750,000), for example.
How Large Is the Forex?
The forex market is unique for several reasons, mainly because of its size. Trading volume is generally very large. As an example, trading in foreign exchange markets averaged $6.6 trillion per day in April 2019, according to the Bank for International Settlements. The largest foreign exchange markets are located in major global financial centers like London, New York, Singapore, Tokyo, Frankfurt, Hong Kong, and Sydney. Forex trading, which is the act of exchanging fiat currencies, is thought to be centuries old – dating back to the Babylonian period. Today, the forex market is one of the biggest, most liquid and accessible markets in the world, and has been shaped by several important global events, like Bretton woods and the gold standard. It’s important for forex traders to understand the history of forex trading, and the key historic events which have shaped the market. This is because similar events could likely occur again in different, but similar forms – impacting the trading landscape. History tends to repeat itself.
HISTORY OF FOREX TRADING: WHERE IT ALL BEGAN
The barter system is the oldest method of exchange and began in 6000BC, introduced by Mesopotamia tribes. Under the barter system goods were exchanged for other goods. The system then evolved and goods like salt and spices became popular mediums of exchange. Ships would sail to barter for these goods in the first ever form of foreign exchange. Eventually, as early as 6th century BC, the first gold coins were produced, and they acted as a currency because they had the critical characteristics like portability, durability, divisibility, uniformity, limited supply and acceptability. Gold coins became widely accepted as a medium of exchange, but they were impractical because they were heavy. In the 1800s countries adopted the gold standard. The gold standard guaranteed that the government would redeem any amount of paper money for its value in gold. This worked fine until World War I where European countries had to suspend the gold standard to print more money to pay for the war. The foreign exchange market was backed by the gold standard at this point and during the early 1900s. Countries traded with each other because they could convert the currencies they received into gold. The gold standard, however, could not hold up during the world wars.
KEY EVENTS WHICH HAVE SHAPED THE FOREX MARKET
Throughout history, we have seen major events that have greatly influenced the forex trading environment. Here are some highlights: Timeline showing the history of forex since the 1800s The Bretton Woods System 1944 – 1971
Sign showing the Bretton Woods monetary conference
The first major transformation of the foreign exchange market, the Bretton Woods System, occurred toward the end of World War II. The United States, Great Britain, and France met at the United Nations Monetary and Financial Conference in Bretton Woods, NH to design a new global economic order. The location was chosen because at the time, the US was the only country unscathed by war. Most of the major European countries were in shambles. In fact, WWII vaulted the US dollar from a failed currency after the stock market crash of 1929 to benchmark currency by which most other international currencies were compared. The Bretton Woods Accord was established to create a stable environment by which global economies could restore themselves. It attempted this by creating an adjustable pegged foreign exchange market. An adjustable pegged exchange rate is an exchange rate policy whereby a currency is fixed to another currency. In this case, foreign countries would 'fix' their exchange rate to the US Dollar. The US dollar was being pegged to gold, because the US held the most gold reserves in the world at that time. So foreign countries would transact in the US Dollar (this is also how the US dollar became the world’s reserve currency). The Bretton Woods agreement eventually failed to peg gold to the US dollar because there was not enough gold to back the amount of US Dollars in circulation, because the amount of US Dollars in circulation increased due to increased government lending and spending. In 1971, President Richard M. Nixon, ended the Bretton Woods system which soon led to the free floating of the US Dollar against other foreign currencies.
The Beginning of the Free-Floating System
Small globe against a cliffside backdrop After the Bretton Woods Accord came the Smithsonian Agreement in December of 1971, which was similar but allowed fora greater fluctuation band for the currencies. The United States pegged the dollar to gold at $38/ounce, thereby depreciating the dollar. Under the Smithsonian agreement, other major currencies could fluctuate by 2.25% against the US Dollar, and the US Dollar was pegged to gold. In 1972, the European community tried to move away from its dependency on the US Dollar. The European Joint Float was then established by West Germany, France, Italy, the Netherlands, Belgium, and Luxemburg. Both agreements made mistakes like the Bretton Woods Accord and in 1973 collapsed. These failures resulted in an official switch to the free-floating system.
The Plaza Accord
In the early 1980s the dollar had appreciated greatly against the other major currencies. This was hard on exporters and the US current account subsequently ran a deficit of 3.5% of GDP. In response to stagflation that began in the early 1980s, Paul Volcker raised interest rates which caused a strong US Dollar (and decreased inflation) at the expense of the US industry’s competitiveness in the global market. The weight of the US dollar was crushing third-world nations under debt and closing American factories because they could not compete with foreign competitors. In 1985, the G-5, the most powerful economies in the world – US, Great Britain, France, West Germany, and Japan – sent representatives to what was supposed to be a secret meeting at the Plaza Hotel in New York City. News of the meeting leaked, forcing the G-5 to make a statement encouraging the appreciation of non-dollar currencies. This became known as the “Plaza Accord” and its reverberations caused a precipitous fall in the dollar. It did not take long for traders to realize the potential for profit in this new world of currency trading. Even with government intervention, there still were strong degrees of fluctuation and where there is fluctuation, there is profit. This became clear a little over a decade after the collapse of Bretton Woods.
Establishment of the Euro
Euro banknotes in denominations of 50 After WWII, Europe forged many treaties designed to bring countries of the region closer together. None were more prolific than the 1992 treaty referred to as the Maastricht Treaty, named for the Dutch city where the conference was held. The treaty established the European Union (EU), led to the creation of the Euro currency, and put together a cohesive whole that included initiatives on foreign policy and security. The treaty has been amended several times, but the formation of the Euro gave European banks and businesses the distinct benefit of removing exchange risk in an ever-globalized economy.
Internet Trading
In the 1990s, the currency markets grew more sophisticated and faster than ever because money – and how people viewed and used it – was changing. A person sitting alone at home could find, with the click of a button, an accurate price that only a few years prior would have required an army of traders, brokers, and telephones. These advances in communication came during a time when former divisions gave way to capitalism and globalization (the fall of the Berlin Wall and the Soviet Union). For forex, everything changed. Currencies that were previously shut off in totalitarian political systems could be traded. Emerging markets, such as those in Southeast Asia, flourished, attracting capital and currency speculation. The history of forex markets since 1944 presents a classic example of a free market in action. Competitive forces have created a marketplace with unparalleled liquidity. Spreads have fallen dramatically with increased online competition among trustworthy participants. Individuals trading large amounts now have access to the same electronic communications networks used by international banks and merchants.
FOREX TRADING TODAY AND IN THE FUTURE
Today, the forex market is the largest market in the world. More than $5 trillion is traded on the forex market daily. The future of forex is shrouded in uncertainty, and is ever changing, leading to everlasting opportunities for forex traders. For forex traders to succeed in an evolving market they need to stay ahead of the curve.
FOREX MARKET
The international FOREX market is by far the largest financial instruments OTC market in the world. According to the Bank of International Settlements data (BIS, www.bis.org, global FOREX turnover climbed to 5.3 trillion USD per day in 2013 from 4.0 trillion USD in 2010. This 35% rise even outpaced the 20% rise from 2007 to 2010! It is worth noting that spot was the largest contributor to turnover growth, accounting for 41% of the turnover rise. At 2.05 trillion USD per day, SPOT trading almost reached the same volume as FOREX swaps (2.23 trillion USD) and accounts for 39% of total FOREX turnover.
Obviously, the main part of foreign exchange transactions volume is carried out by large participants of the forex market: central banks, credit institutions, investment banks, hedge funds, asset managers, transnational corporations etc., who perform foreign exchange transactions either for speculative purposes or for hedging against exchange rate risks.
In the last decades, the dynamics of forex rates fluctuations have been greatly by such factors as large international mergers and acquisitions (M&A), which generate significant cash flows.
Nevertheless, today, in the age of modern information technologies and information flows, retail clients play an increasingly important role and gain a larger share of financial and capital markets, asserting themselves as quite aggressive and serious market participants.
Our advantages
Direct access to interbank liquidity based on ECN/STP
Aggressive and competitive market spreads
Instant order execution
DAutomated order execution without broker interference
More than 50 currency pairs available for trading on FOREX market
Trading without restrictions, allowing large volumes or scalping
No restrictions on pending and market orders
No time limits for open positions maintenance
How you should choose the top forex trading brokers?
These days, many individuals have started investing some money with the Forex trading platform. If you already know something called basic about Forex trading, then you must know that this platform is better to earn a lot of money. However, you need to become familiar with the term Forex trading broker right from the start. To conduct your trading activity, you must select a professional and qualified Forex broker without.
At the present moment, there are thousands of Forex brokers present in the market that you can choose according to your needs and budget. Choosing the best Forex broker could become a daunting and challenging task. You see a vast number of magazines and internet advertisements about the top Forex brokers. Overall, you need some salt of tips and helps while choosing the right Forex trader.
Essential things to check about a forex trading broker
Now, you have become completely familiar with all important things about Forex trading and the need for a Forex trading broker. When you want to get a forex trading demo account South Africa, you must check the following things in a Forex trading broker:
Advantages and Disadvantages of Cryptocurrency
General Advantages
Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company. These transfers are instead secured by the use of public keys and private keys and different forms of incentive systems, like Proof of Work or Proof of Stake.
In modern cryptocurrency systems, a user's "wallet," or account address, has a public key, while the private key is known only to the owner and is used to sign transactions. Fund transfers are completed with minimal processing fees, allowing users to avoid the steep fees charged by banks and financial institutions for wire transfers.
Certified brokers
– in the beginning, it is your accountability to ensure that the selected Forex trading broker is certified and registered with the local authorities.
Years of experience
– similarly, you need to ensure that the selected Forex trading broker has years of experience in the same industry. You can utilize the experience of a trading broker at different stages.
Know all account offerings
– on the other hand, you must remember that the selected Forex trading broker should provide some specific account offerings to their customers. This is why you have to become completely familiar with all account offerings without any kind of doubt.
Provide a wide range of forex pairs
– as a trader, you should get in touch with the right trading broker who can provide a wide range of Forex pairs.
24/7 customer services
– when you are all set to choose the best forex trading demo account, you should get better customer services. The top Forex trading brokers can provide you 24/7 customer services.
Extensive knowledge
– in the conclusion part, you can consider the extensive knowledge that the Forex trading brokers must-have in the same field. So, these are some of the important things that you have to keep them in your mind while finding the best Forex trading brokers.