Forex market definition




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Forex market definitionForex Market Definition

The forex markets are global markets where currencies are traded. The forex market is the worlds largest financial market in convertible currency trading with an daily average currency trading value that exceeds $1 trillion and includes currencies from around the world. The highest percentage of forex trading in the forex markets is attributed to individual forex traders and institutional forex speculators.

There is no one central forex marketplace or location for currency exchange; forex trading is conducted over-the-counter. The forex market is open 24 hours a day, five days a week and currencies are traded worldwide among major financial centers located in New York, London, Paris, Tokyo, Zurich, Frankfurt, Singapore, Sydney and Hong Kong.

In total cash traded, the forex market is the largest financial market in the world. Participants in the forex markets consist of any person, forex trader, firm or country.

The foreign exchange market ( forex aka FX ) is one of the most exciting, fast-paced financial markets available. Forex trading in the currency market had once been the domain of central banks, large financial institutions, hedge funds, corporations and extremely wealthy individuals or forex traders. The emergence of the Internet has made it possible for even the average forex investor or forex trader to buy and sell currencies with the click of a mouse through online forex brokers for online forex trading.

With the fluctuations of daily forex currencies usually minimal, most forex currency pairs move less than one cent per day. This movement in the forex market represents less than 1% change in the value of a forex currency. This minute movement makes the forex exchange one of the least volatile financial markets around the world. Due to this limited movement, many forex traders and currency speculators rely on the availability of enormous leverage to increase the value of potential currency movements. Leverage in the retail forex market can be as high as 250:1. Higher leverage in the forex market can be extremely risky. Because of the global, round-the-clock trading of forex with deep liquidity, forex brokers have been able to make high leverage an industry standard in order to make the movements meaningful for forex currency traders.

Extreme liquidity and availability of high leverage for currency trading have helped spur the forex market's rapid growth and make it the ideal place for forex traders. Forex positions can be opened and closed within minutes or can be held for months if so desired, by the forex trader or forex traders. Currency prices are based on objective considerations of supply and demand and cannot be manipulated easily because the size of the forex market does not allow even the largest players, such as central banks, to move prices at will.

The forex market provides ample opportunity for forex investors and forex traders. However in order to be successful, a forex trader must understand the basics behind forex trading as well as the movements of the forex market.

Forex Trading, Market Risks

In order for a forex trader to engage in forex trading they must first contract a forex broker and must have access to a forex trading platform, if they wish to execute forex trades. Forex traders or forex investors will be required to sign a risk disclaimer at the time they open a forex trading account. Forex traders will not be able to establish a forex trading account without signing a forex trading risk disclaimer. The forex trading account disclaimer will specifically spell out the potential risk associated with forex trading. Although the forex trading risk disclaimer is often in fine print, it is imperative that at no time, should a forex trader *not* read the agreement in its entirety. With the signing of the forex trading disclaimer, the forex trader acknowledges they read and understand risk involved in forex trading.

Risk and matters to take into consideration when deciding to trade the forex markets include making the decision to begin trading forex markets while forex trading. A forex trader must be certain to have efficient equipment and enough speed to handle forex data. Forex day trading education is essential for all individuals interested in forex trading. Development of an individual forex traders trading strategy takes time, focus and determination however, no forex trader should consider placing a live trade without one. Financial losses will occur, when trading the forex market. A key to success for any forex trader is their ability to handle and control losses they realize while trading the forex.

Forex Trading Online, Tools of the Trade

As with any skill - access to and the quality of tools used, will impact results. The speed at which you access the Internet will have an adverse affect on your forex trading. Unsatisfactory Internet speed will have a negative impact on your forex trading performance. Regardless of your forex trading platform or the forex trading provider you select, Internet access and the overall speed of your Internet, is not within the forex platform's control. The age of your computer equipment, your Internet provider's service and speed may affect even your ability to access your forex trading platform. Poor Internet access may interfere with entering and exiting forex trades. Consider investing in a reliable computer and at least 2 or more monitors ( if you can't afford at least 2 monitors you should not be trading forex ). At no cost should you skimp on your Internet service. Speed of data downloaded on your computer from your trading platform is vital, with no data there is no forex trading. There are a variety of services provided from various forex brokers just as the forex trading platforms will vary in their ease of use, access to forex training, leverage exposures as well as pip spreads that are the difference between the buy and sale prices (bid and ask). Although switching forex brokers is not a guarantee of improved profitability, there may be times when switching forex brokers may result in an improvement is some manner of your forex trading strategy.

Successful Forex Trading is a Skill

Risk levels need to be addressed with your approach to forex trading due to the significant influence of risk involved. The forex traders approach at forex trading should not be a game of gambling or luck but, systematically determined probabilities that enable the potential of profitability on a specific forex trade. Successful forex trading of the forex market is not developed overnight or by participating in some weekend forex trading conference. In order to achieve successful forex trading it is best to develop your forex trading strategy based upon principles you have set for your forex trading methods as well as at all times, monitoring the performance of your broker to assure that you do indeed, have the best forex broker that you can find. Serious forex traders understand that while forex education will not guarantee success at forex trading however, forex trading education is a vital ingredient in attempting to reduce unnecessary losses as well as improving your forex trading mentality.

Attempting to Control the Unpredictable when Day Trading the Forex Market

Forex trading is a volatile trading method and the forex markets are very sensitive to overall global market conditions - including political activities in countries around the world. Economic data reports as well as the anticipation prior to the release of the same, can create increased volatility in the forex markets. International bank rate changes, employment levels, consumer spending as well as the gross domestic products can create increased volatility in the forex markets. During the time prior to the release of important data, forex traders may see increased movement or volatility in the forex markets. Even though there are times when there appears to be just the right conditions for opportunities for potential mass profits, the risks involved should never be overlooked while forex trading. Activity acted upon by a forex trader may be based on a forex trading strategy they developed, in an effort to predict how a majority of forex traders will react to various global market actions. Serious forex traders may back-test various forex trading strategies, in an effort to develop a more perfected forex trading method.

Stop losses, profit limits per trade or for the forex trading day, forex trading strategies for a particular entry and exit, timing of placing and exiting a forex trade - all are key factors that a professional forex trader takes into account - even before they complete the entry to any forex trade. Some forex traders will attempt to develop a mathematical probability that a particular forex trade will work. Other forex traders base their decision to make a particular forex trade based on various global activities that are occurring as well as their actual unpredictable outcome - unless of course, that forex trader has a crystal ball! The one thing that must be mastered to even begin the long road toward a successful forex trading career is discipline. Discipline is needed to even attempt to control your forex trading methods. Prior to the wise forex trader making any forex trade, that forex trader must recognize their forex trading limits, forex trading ability and experience in order to react to the potential risk exposure - discipline which is a skill retained by disciplined forex traders.

Psychology of Forex Trading

The true psychology involved in forex trading begins with the forex trader setting a stop loss on a forex trade and meaning it. Even though the real purpose of a stop loss is for it to never be triggered however; when that stop loss does kick in, instant physiological stress responses kick in as well as the ranting, raving and depression. This is not a good sign of stop loss management. The true purpose of a stop loss is that it provides a sound risk management tool used to protect equity should a forex trade go against you and forex trades will go against you. If you are not prepared financially or emotionally to take a stop loss on a forex trade you should stop trading forex, now.

For a forex trader to set and stick to a set stop loss, is a key tool toward perfecting the skill of risk management, in itself. Entries should not be taken on a potential forex trade just because the forex trade 'looks very good in probability' but, the entry opportunity creates poor risk-to-reward ratio.

When a forex trader makes a trade that leads to a loss, aside from the initial financial loss experienced, occasionally that forex investors will begin to experience psychological challenges of depression, a sense of failure as well as potential other negative feedback that are not the best way to respond to a known risk in forex trading. If your personality or financial stamina is not well suited for handling losses when trading forex, then forex trading is not a good investment vehicle for you.

Its possible for any trader to hit a 'grand slam' while trading the forex markets. The true test for the professional forex trader is the ability to trade tomorrow realizing that one days gain does not guarantee a profitable tomorrow. No two trading days will present the same trading opportunity. The wise forex trader refreshes the skills they developed in an effort to see yet another, profitable forex trading day.

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