What is Forex

The foreign exchange market, also referred to as Forex, is a global investment market established for currency trading. Forex is the largest and most liquid financial trading market in the world, accounting for an average daily turnover of approximately $3.98 trillion. Many sophisticated investors choose Forex trading as an alternative to traditional investment strategies, such as stock and bond trading. Forex transactions are conducted directly between two parties, the seller and the buyer. The purpose is to maximize profits from fluctuations in exchange rates of two currencies. Every trade results in a loss to one investor and a gain to the other.

The foreign exchange market was designed to promote international trade and investments by allowing corporations and portfolio managers to convert currencies. In a typical Forex transaction, one investor purchases a determined quantity of a specific currency by paying with a quantity of another currency, either in cash or through contract purchases. Only two currencies are involved in a single transaction. Forex traders include international banking institutions, retail investors, government entities, retirement portfolio brokers and individual currency speculators. Investment management firms that manage large retirement accounts on behalf of endowments and pension funds use the Forex market to facilitate investments in foreign securities.

Forex trading is divided into various levels of access. The primary level of access is the international banking market, which is comprised of the world’s largest commercial banking institutions and securities dealers. International banking investments account for approximately 53% of all Forex transactions. Investments in Forex are made by global corporations, pension funds, insurance companies, mutual funds and hedge funds. The international banking industry adds billions of dollars each day into the foreign exchange market. National banks attempt to exert control over the global currency supply, taking advantage of money supplies, inflation, interest rates and fluctuations in currency exchange rates.

In Forex trading, the currency exchange rate is fixed on a daily basis by the national banking system of each country, which is used as a trend indicator. Trends for any given currency can vary widely, and are largely influenced by economic factors and political conditions in a specific country. Economic factors that affect foreign exchange rates include budget and spending trends, as well as fluctuations in interest rates. The impact of a specific government’s overall economy is an important factor in evaluating the value of its currency. Strong economic growth and economic productivity play important roles in the valuation of currency. The stronger the economy, the more value is placed on its currency.

There are several types of Forex transactions, many of which are quite detailed and must be professionally analyzed by a professional currency exchange broker. Spot trading involves a rapid turnover and are strictly cash transactions. In forward transactions, funds are not paid until a mutually agreed future date. The most common form of Forex transaction is a swap, in which two parties agree to exchange currencies for a specified length of time and agree to reverse the transaction at a later date.

The selection of an experienced Forex broker with proven success in financial investments is critical for success in the complicated currency exchange market. Forex trading may not be suitable for conservative investors, due to the significant risk of financial loss. For more information on Forex or to begin Forex trading be sure to contact Lucror FX today!

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