Forex is an international bank-to-bank currency market. Forex trade assumes purchasing or selling the currencies. Due to ever-changing currency rate, buying a currency at lower price and selling it at higher one you can gain profit catching its further movement correctly (for example: correctly determine the news).
Forex market partakers are: banks (central and commercial), pension funds, insurance companies, brokers, dealers and private investors. Because of a great participants number and similar trades volume a lot of transactions are executed in a few seconds.
A huge capital is not required for trading on Forex, as broker gives a loan - leverage. Its size is equal to hundredfold amount of deposit, it means that a trader (participant playing on Forex) enters the market with a sum exceeding the amount for trades execution hundredfold.
Trade execution on Forex consists of 2 parts. First: trader opens position with a certain currency pair. Second: he closes position with this pair. Trades on Forex are closed automatically during several seconds. However, even such a big trades quantity accomplished by traders cannot put a substantial effect on price.
Position opening in Forex trading is a process of requesting one currency from a broker for a certain quantity of another. The cost of a base currency in the first pair is called quote displayed in the quoted currency unit. It has 2 figures: Bid - the cost of base currency sold for quoted one and Ask - the price at which it is bought. A difference between them is called spread (it is the main income source for a broker), and point is the minimal price movement which can be accepted. Currency rate information is always available for those who operate on Forex market.
Forex trading is carried out in three ways. These methods involve several trading strategies. Traders with big trading experience on Forex develop their own strategies for several years, but there are some approved and really beneficial strategies:
- Day trading (intraday short term trading) is opening of short term trades by a trader for 1 or 2 minute period up to a couple of hours. Such trades are usually closed in the same trading day and almost never carried over night.
- News trading. Traders using this kind of trading can always have a stable profit, making the right analysis of published news. At the same time, wrong news analysis and position setup can result in serious losses.
- Midterm trading. With this kind of trading, trader opens long period trades (from 1-2 days up to 1-2 months). Getting a huge profit following this strategy is possible in case a trade remains opened for a few days at least. A good capital is needed for backing up such trades.
- Technical analysis in Forex trade implies an option to estimate and make right analysis of different chart types (bars, Japanese candlesticks, lines) with currency pairs and figures displayed on them that allows to forecast rate fluctuations of the currency pairs.
- Carry trade is gain acquisition from difference betweeen the interest rates of currency pairs.
Using this type of trade, trader's positions remain open for a long period of time (from 2-3 months to 1 year and more). Such trading requires a big capital. It is used for waiting when a trade becomes profitable not to bear losses until the price changes to the right direction.
Also one of the advantages of Forex trade is that the work does not stop 24 hours 7 days a week (from Monday to Friday), therefore, regardless of difference between the time zones and location you can continue taking part in trading. Such opportunity of trading on Forex is provided by the world financial centers managed by the national banks together with international banks where different countries capital is kept.
Major of them are located in: New York, London, Tokyo, Paris, Luxembourg, Singapore and Austria. They allow supporting the liquidity for trading on Forex during the whole day and night.