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What is the forex market?

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What is the forex market?

What is the forex market? The Forex (foreign exchange) market is the largest trading market in the world with a daily volume of 5 trillion dollars. It is the basic exchange technology for business and commerce. With such a large daily volume of trading operations, the Forex market offers various trading opportunities for people looking to take advantage of currency value changes.

What is the forex market?
Forex traders buy and sell currencies 24 hours a day, six days a week, and gain increased leverage (purchasing power) to predict global cash flows and market volatility.

The foreign exchange market, referred to as Forex or FX, is a worldwide, decentralized, parallel market for monetary exchanges.

Global (worldwide)
It is a global market because you find the value of the local currencies of countries against other currencies.
These markets are driven by global and political events, which in turn affect the relative values ​​of countries’ currencies, which also influence the change in the value of currency pairs.

Decentralization
Decentralization means that there is no central exchange, unlike the stock market.
Instead, the function of malls across the world is as a haven for exchange between a large number of different types of sellers and buyers around the clock, with the exception of weekends.

Parallel market
The currency market is not controlled by any central governing body, and there are no clearing houses to guarantee trades.
Brokers and traders negotiate directly with each other over electronic networks.
The market in which traders negotiate prices among each other is called the parallel market.

How to trade forex?
For active traders, the forex market will not be much different from trading other commodities, such as stocks, commodities, or fixed income. Forex offers traders a market where they can buy or sell an exchange product. In this case, this product is a pair of certain currencies.

This currency pair could be EUR/USD, USD/JPY, GBP/USD, EUR/GBP, or a number of other currency combinations.

Other currency combinations represent the value of one currency against the value of the other. The relationship is represented by one price.

In a foreign exchange, the price of a currency pair is the market’s expectation (at the time) of the value of that currency measured in terms of another, based on the current and projected economic and political situation in the two economies. In other words, it is similar to the stock price.

How does it compare to other markets?
When stock markets have a daily volume of billions of dollars, forex has a daily volume of more than 4 trillion dollars. Forex market participants include major banks, hedge funds, other trading institutes, global corporations, and individual traders. The majority of forex transactions are the result of currency conversions associated with the day-to-day business of the world.

What factors are taken into account when deciding how to trade in forex? How can we compare stock trading? Suppose, for example, that the rate of inflation and interest rates in an economy is low and stable, the result is that it is growing strongly, and its policies are stable. We can expect this country’s currency to remain strong against a less favorable currency.

Now, let’s compare this to the stock of a particular company. If the domestic and global economy is strong and inflation is not high, competitors will not gain market share, demand for products is stable, and workers are producing, then we can expect the company’s stock to remain strong versus a company with less positive fundamentals.

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