Login with Facebook
Close

What is the Foreign Exchange market?

The Forex (Foreign Exchange Market or FX market) is the financial market of cross-currency, a market in which a currency is exchanged for another currency.

Forex trading is the buying and selling of currency crosses for speculative purposes, therefore to obtain profits. The foreign exchange market is the market through which individuals, companies, and/or institutions can convert one currency into another.

In this article, you will deeply understand what Forex is, how it works, and the most important characteristics of this market. CFD trading is much better suited to the currency market than other markets. In this guide, you will better understand why. And therefore, you will understand why Forex trading is the type of trading chosen by the majority of people.

What is a foreign exchange market and how it works

Forex or foreign exchange markets allow citizens, businesses, and institutions worldwide to exchange one currency for another. So Forex trading is primarily a means of making the global economy work since it allows transactions between people from countries that adopt different currencies. But you yourself already know that the currency market is also something else. It is the most suitable market in the world to speculate, and therefore to make short and very short term trading to obtain profits. To understand what forex is, you need to know that there is no reference stock exchange for currencies. Currencies are exchanged through brokers, dealers, and banks. There is basically no "official site" where transactions are conducted. Prices are created from the set of transactions that intermediaries such as brokers and banks, carry out. Transactions lead to the "creation" of the price of all currency pairs at a given time.

Now let's focus on these three words: "currency pairs." Currencies are traded in pairs.

For example, if you "buy" the EUR / USD cross, it means that you are exchanging euros and dollars, or rather you are buying euros, and at the same time, you are selling dollars. In other words, do you believe that the euro will appreciate in the future while the dollar will depreciate (or that the euro will appreciate more than the dollar) to gain from these currency movements?

The first currency of an FX cross is called a certain currency. The second currency of an FX cross is called the uncertain currency. The listing of a pair (or cross) shows "how much 1 unit of a certain currency is worth in terms of uncertain currency." For example, if the EUR / USD exchange rate is 1.10, it means that € 1 is worth $ 1.10. If the cross increases, then it means that the euro is gaining value against the dollar. Conversely, if the cross decreases, it means that the dollar is gaining value against the euro. Any cross on CFDs is quoted with two prices: money and letter. 

The six characteristics to understand what forex is:

Now let's move on to the description of the main characteristics of this market.

Features that are unique and that make the Foreign Exchange Market the most loved market by traders all over the world. There are six characteristics for which the currency market is the best in the world for trading. Let's begin!

Open 24 hours a day, five days a week

The currency market is open 24 hours a day, from Monday to Friday. Due to its unique peculiarity of not having an official exchange on which exchanges take place, this market is available to traders’ 24 hours a day.

This means that you can open a trading position or liquidate one at any time of the day you prefer. And it's no small detail.

It is the largest and most liquid financial market in the world

What is forex? Some would answer, "It is the largest financial market in the world."

With its trading volume of over $ 5 trillion per day, the FX is by far the largest financial market in the world. In this market, there is the largest number of daily transactions in the world, both in terms of quantity and volume. It is also the market in which the largest number of operators operates every day.

So FX is also the most liquid market in the world: you will always find a seller for every buyer. It is too large a market to have liquidity problems.

It is the most volatile financial market in the world (and the most suitable for trading)

It is the fact that short-term and very short-term trading are more suitable for trading on volatile financial assets than for fairly stable assets. Think about it.

If an asset moves little over time, it is certainly more suitable for investment. That is, it is suitable for keeping a certain amount of money invested for several years.

But such a stable asset can never be suitable for short and very short term operations because its stability makes it difficult to make money on short and very short term price movements.

Here, the main reason forex trading is so successful is this: it operates on the most volatile financial market?

It is the most suitable for short and very short term trading.

The volatility is given precisely by the characteristic of which we spoke previously. The huge amount of operators and the volumes of daily exchanges mean that cross-currency, especially those of very well-known currencies, can move quickly even in a short time.

And this represents a fantastic opportunity to earn with short and very short term trading!

For completeness, it must be said that the foreign exchange market has been the most volatile market for many decades. Basically, since the end of the Bretton Woods agreements until 2016, there has been no history: it has been the most volatile market in the world. In the last few years, however, the currency market has lost the most volatile market throne in favor of a totally new market i.e., cryptocurrencies. 

The currency market is very well suited to technical analysis

The technical analysis is the study of a financial asset's graph to determine an advantageous price of entry or exit from a trade. You will find many technical analysis concepts that you can consult for free when you want. The FX is the market that best fits the graphical concepts of technical analysis. This is another direct consequence of the enormous volume of daily exchanges, which makes technical analysis more valid than other less traded and liquid assets.

Forex is a market that adapts very well to the fundamental analysis of the broad scope

The fundamental analysis of a financial asset is concerned with understanding the real reason why the asset moves in one way and not in another is. Therefore, the fundamental analysis is not based on the graphs but on the fundamental, real reasons that cause the movement of an asset. FX is influenced by fundamental, far-reaching analysis, that is, that which is based on the present and future of a country's economy.

In fact, a currency is primarily influenced by the monetary policy behavior of the central bank of reference. But the attitude of a country's central bank is linked to the performance of the economy. The currencies are influenced by the performance of a country's economic indicators such as inflation, GDP, employment, consumption, a country's fiscal policies, and much more. This fundamental analysis can be definitive of "wide-ranging" and is the one that we talk about on the Euro Dollar forecast page precisely because it is the one connected to currencies.

CFD brokers allow you to trade at very advantageous conditions

Here we are focusing on trading about two financial instruments: CFDs and cryptocurrencies. One of the reasons why we focus heavily on forex CFDs is because the CFD brokers you can trade on offer much more favorable FX trading conditions than other assets such as stocks or indices.

But which CFD broker to use for trading?

The best broker for trading on FX CFDs is the IQ option!

IQ Option is the best broker in the world to trade on FX CFDs since you can enjoy the lowest commissions ever, and you can trade on a super intuitive and professional graphical analysis platform.

The initials of the most important currencies

To fully understand what forex is, you must know the abbreviations of the most important currencies. Here they are:

- USD: US dollar

- EUR: Euros

- GBP: Pound Sterling

- JPY: Yen

- CAD: Canadian dollar

- AUD: Australian dollar

- CHF: Swiss Franc

- NZD: New Zealand dollar

Why focus only on forex?

There are many private traders who trade CFDs with other assets underlying them, for example, individual stocks. 

You should not consider individual stocks, indices, and commodities as optimal assets for trading CFDs, for two simple reasons:

1. The first reason is that it often makes more sense for other assets to act according to long-term logic than short-term ones.

For example, the shares are more than all the assets that should be bought because it is believed in the company's intrinsic value, not for short-term price fluctuations, which are very difficult for stocks to predict, more difficult than for other assets.

In short, the analysis of value investing, or the analysis that aims to understand the real value of an asset works much better on shares. But value investing is very difficult to do for the short/medium term. Value investing is much better suited to the long term; therefore, investment.

2. The second reason is that although the technical analysis also applies to other assets such as stocks or bonds, these assets are decidedly less technical than the currency market.

This is because they are less volatile.

It is clear that a single share is important, and it will be less and less betrayed compared to a currency cross. So it will be less volatile, and consequently, it will be less "technical" and less suitable for short term trading. In general, assets such as stocks and bonds are much more suitable for investors, and for the creation of portfolios to be kept in the long term. A separate discussion deserves trading on raw materials and precious metals.

Commodities and precious metals are more suitable for short-term trading than stocks or bonds. But they are still less suitable for short-term trading than FX.

For this reason, although it is not an asset on which we do not advise you to operate. However, many concepts, such as technical analysis, are actually also useful for trading on other types of assets. 

Summary:

- Forex trading is the buying and selling of currency crosses for speculative purposes, therefore to obtain profits

- There is no reference exchange for currencies. Currencies are exchanged through brokers, dealers, and banks

- You can trade on currency pairs. The first currency of a pair is called a certain currency. The second is called uncertain currency. The listing of a pair (or cross) shows "how much 1 unit of a certain currency is worth in terms of uncertain currency."

- The six characteristics to understand what forex are:

1) Open 24 hours a day, five days a week

2) It is the largest and most liquid financial market in the world.

3) It is the most volatile financial market in the world (and therefore the most suitable for trading)

4) It is a market that adapts very well to technical and fundamental analysis of the broad scope

6) CFD brokers allow you to trade on forex at advantageous conditions. In particularForeign Exchange market, the best broker that you can choose from is the IQ option.

Author: Vicki Lezama


Need a custom
essay?

We will write it for you.
Order now

Free Essay Examples

Free essays:

All you need to know about Neuroendocrinology
All you need to know about Big data management
All you need to know about digital special effects
All you need to know Technical Writing?
Basics the Game Theory in Cryptoeconomics
Business innovation ideas for making money
Biosensors for cancer diagnosis
Business Analysis: Pricing strategies and Demand Curve
Cognitive Computing- How does Cognitive Computing work?
Consciousness: characteristics and peculiarities
Conservation Economics
Cybersecurity in business: challenges, risks, and practices
Demographic trends and how they affect Economic Growth
Dance as an art form and entertainment
Discrimination Economics
Determinants of Wages
Everything you need to know about short-term memory
Economic and Policy Impacts of Demographics
Ethics: an essay on the understanding of evil
Emotions: what are they? Theories explained
Factors of Demographic Data Collection
Factors Affecting Purchasing Behavior
Financial Statement Analysis
Factors Influencing Interest and Exchange Rates
Government's Intervention in The Labor Market
Guide on the Pathways of the nervous system
Game theory in microeconomics
Globalization: definition, causes, social impact and risks
How Relativism Promotes Pluralism and Tolerance
How to use the audience’s feedback to write a news report
History of silent cinema
How news report can be strengthened through multimedia
Introduction to Population Problems
Imperfect Information and Asymmetric Information
Imperfect Information in Insurance
Introduction to Labor Markets
Journalism: What is News?
Journalism: Broadcast media and Television Presenters
Journalism: Sources of News
Journalism and Law
Key Determinants of National Income
Key Factors That Affect Pricing Decisions
Kinetic models in biology and Related fields
Know about the different forms of traditional African dances
Latest technology trends
Latest dance trends
Magnetoencephalography (MEG)
Microeconomic Analysis to the Demand for Labor
Neuromuscular disorders
National Economies, Fluctuation, and Responses to Fluctuations
Neurotransmitters: what they are and different types
Nanomedicines to target tumors
Objections to utilitarianism
Organizational motivation and its effects
Overcoming Hiring Challenges for Nonprofit Organization
Population Demographics
Recurrent neural networks (RNN) for speech detection
Russian School of Mathematics
Research and Development
Risk Sharing in Insurance and Asset Markets
Stochastic optimization methods in deep learning?
Structure of the nervous system
Structure of a Corporation
Schizoaffective disorder: how to live better with it
The climate change denial
The techniques of basic cinematography
The Endosymbiotic Theory
The Role of Internal Audit in Corporate Risk Management
Unions
Unemployment
Utilitarianism Vs. Kantianism
Understanding Auctions and Auction Theory: Part 2
Various theoretical perspectives of sociology
Virtual reality, what it is and how it works
What are the linear models in machine learning?
What is Convolutional Neural Network
4 Facts about Origin of Mathematics!
5 techniques to create an animation
10 emerging technologies according to World Economic Forum
10 strategies to maximize corporate profits
3d Model Of Building
6 Medical Technologies that revolutionized the healthcare in 2020
All you need to know about the ACA Code of ethics
Architecture and Democracy: An Introduction
Architecture and Democracy: Democratic Values
Architecture and Democracy: Democratic Procedures
All You Need to Know About a Synthesis Essay
An essential guide to understanding Film Theory
Application of Artificial Intelligence in Cyber Security
Applications of electrical engineering
Augmented reality: what it is, how it works, examples
Advantages And Disadvantages Of Social Networking
All you need to know about Cryptography
Applications of astrophysical science
All you need to know about architecture engineering
Applications of geological engineering
Artificial intelligence and medicine: an increasingly close relationship
An insight into Computational Biology
ACA code of conduct
A Rose for Emily
Applications of Mathematics in daily life
Architecture mistakes to avoid
All you need to know about Toxicology
All you need to know about Holistic Medicine
All you need to know about linguistics
An introduction to Linguistics and its subfields
All you need to know about Anxiety disorder
All you need to know about Drones
A Brief Insight into Political Science
Assumptions related to feminism
All you need to know about Byzantine emperors
All you need to know about labour economics
An insight into xenobots -the first-ever robots
An ultimate guide about Biomaterials
A Comprehensive Introduction to the Mona Lisa
Analysis methods of Transport through biological membranes
An ultimate guide about biochemical reactions
Analysis of brain signals
Artificial Gene Synthesis
Application to synthetic biology of CAD methods
All you need to know about metabolic pathways
Applications of BIOMEMS
All you need to know about the epidemiology
Asian vs. western leadership styles
All you need to know about Smart prosthesis
Analysis of Economy: Output of Goods and Services (GNP), and GDP on Economic success
A Guide to Pricing Strategies
An Overview Of Economic Studies
Analysis of Fiscal and Monetary Policies
Analysis of Business Cycles
Analysis of Consumption and Investment
A Look into Regression Analysis
Analysis of Household's Consumption and Savings Behavior
All you need to know about Capital Budgeting
All you need to know about risk management
Art looted in wartime.
Appropriate use of Data in Economics
All you need to know about reaction kinetics?
A historical overview of Financial Crises
All you need to know about management discipline?
An insight into the error-correction models
All you need to know about Data visualization
All you need to know about Work-family balance
All you need to know Technical Writing?
All you need to know about digital special effects
All you need to know about Big data management
All you need to know about Neuroendocrinology
How to Write a Personal Essay
Housing Needs in America
How to Write a Description Essay
How to Create an Excellent Scholarship Essay?
How to write a cause and effect essay
How to Hire the Best Essay Writing Service Provider?
How to Write a College Application Essay?
How to get the most out of your English lectures
How to write Expository Essay
How to succeed in your psychology class?
How to Write an Academic Essay in the Shortest Time?
History of Journalism
How Different Sectors are Using Artificial intelligence (AI)
How to write an informative essay
How to deliver persuasive essays?
How to Give a Convincing Presentation
How to write an essay on leadership?
Historical Art Still Around Today
Humanoid robot: what it is, how it works and price
History of Chemistry
Healthcare Advanced Computer Power: Robotics, Medical Imaging, and More
Healthcare AI: Game Changers for Medical Decision-Making and Remote Patient Monitoring
How to understand different types of English
How to Cope with Chronic Pain
How African American choreographers and dancers have influenced American dance
How mobile robot can do in logistics or in production
How To Become a Successful Entrepreneur
History of the Philosophy of Feminism
How is the climate changing?
How to Track Your Content Marketing ROI
How to Gun control In the USA?
Historical and contemporary role of labour in the modern world
How breast cancers are classified?
How the cells of our body communicate?
How the Lymphatic System Works?
How Digestive System Works
How to complete your capstone projects effectively?
How to write a research project
Healthcare technologies that help patients with better self-management
How to choose the topic of the senior capstone project
How to make your business survive at economic crisis
How can immigrants blend in the American society?
How does the economics of war affect society?
Hate speech on social media.
How to Build an Economic Model
How to start a healthcare startup?
How can financial illiteracy harm you?
How cancer is developed - Cancer biology
How to define the Enterprise Value
How to conduct economic research?
How women can manage sexual harassment
How to use quotes in your news reports?
How news report can be strengthened through multimedia
History of silent cinema
How to use the audience’s feedback to write a news report
How Relativism Promotes Pluralism and Tolerance
Introduction to Urban Studies
Importance of dance in education
InMoov: how to build an open source humanoid robot
Importance of KYC verification to making the Blockchain secure
Importance of Rhythm
Importance of dance student evaluation
I/O control methods -types and explanations
Identity theft: what to do?
Introduction to Utilitarianism
Importance of 3d Modelling in Architecture
Importance of online journalism
Image processing in medical diagnosis
Introduction to USA Politics
Introduction to Comparative Politics
International Relations as a Major in Political Science
Importance of modern trade policy
Introduction to Journalism
Introduction to Writing a TV Script
Introduction of Microfabrication techniques
Introduction to Microeconomics
Interaction of Consumer and Firm Choices in Markets
Importance of corporate sustainability
Issues in International Monetary Macroeconomics
Introduction to Statistics and Data for Economics
Introduction to Data and Probability for Economics
Introduction to the Game Theory
Introduction to Econometrics
Introduction to Economic Information
Introduction to Market Equilibrium
Introduction to Economic Models and Application
Introduction to Empirical Research
Introduction to Econometric Data
Importance of Critical Thinking, Principles, and Goals
Introduction to Identification and Causal inferences
Introduction to Econometric Application
Intermediaries and Government in Financial Crisis
Importance and seven principles of quality management
Illiteracy in the USA
Introduction to Economics of Law
Introduction to Coase Theorem
Introduction to Social Choice and Incarceration
Intellectual Property and Product Liability
Investment in Human Capital
Introduction to Labor Markets
Imperfect Information in Insurance
Imperfect Information and Asymmetric Information
Introduction to Population Problems
The Looming Energy Crisis in America
Top benefits of performance-based engineering
The More Languages You Know, The More Times You Are a Man
Things to consider while writing an Argumentative Essay
Top Ways to Improve Your Academic Writing Skills
Tips to Excel in Creative Writing
The origins of films in the early 19th century
Top career options in Architecture
The Elevator Pitch
Top finance trends 2020
The basic Structure and functionality of robots
The Way to Success
The election system of the President in the United States of America
Two-party System in United States of America
Top trends in urban design
The history and theory of African American filmmaking
Top benefits of creative writing
Tinnitus Guide: Common Symptoms and Treatment Options
The language of dance
The digital image processing management
Top famous politicians of the World
Top methods of political science!
The history of the feminist movement
The blood flow in cardiovascular system - Biofluid Mechanics
The best of Leonardo Da Vinci
The Structure and Function of Macromolecules
The structure of cell: a research on the bricks of the human body!
Tissue and organ construction: Adhesion and recognition between cells
The kinetics of the transformation processes
The Modeling of Biological Systems
Tips for writing a great thesis statement
The Defense mechanisms against infections
The impact of the technological innovations in medicine
Top journalism trends to know about
The relation between mass media & politics
Theranostics: Diagnosis and Care through Nanoparticles
The practical Applications of X-rays
The applications of Ultrasound in medicine
Transfer mechanisms of genetic information in Bacteria
The regulation of cellular metabolism in the diagnosis
The Principles of MRI Contrast agents
The technical basis of optical coherence imaging
The New Media: Emerging Trends
The Structure of Interest Rates and the Yield Curve
Technological perspectives and reflections of neural engineering
Types of bioreactors and their applications
The Role of Government Policy in Improving Economic Outcomes
Types of corporate responsibility
The Role of IMF in International Monetary Macroeconomics
Tools for investment decision making
The concept of Organizational Culture and its applications
The Conduct of Monetary and Fiscal Policy
The Basics of Financial Accelerator Models
Tips for labeling medical devices- Medical Entrepreneurship
The different medical imaging techniques
The Economics of Uncertainty – Introduction
Theories of Public Policy
The Game Theory in Social Media
The political theory of Thomas Hobbes
The Use of Law on Economics and Vice Versa
The Role of Internal Audit in Corporate Risk Management
The Endosymbiotic Theory
The techniques of basic cinematography
The climate change denial
What is a Definition Essay?
What are diagnostic essays?
What is the relation between art structural engineering?
What is a Narrative Essay
What are robotics and intelligence systems?
What are the benefits of studying health sciences?
What is artificial intelligence and why it matters?
What is comparative Literature?
Why study neuroscience
What is Wi-Fi and how does it works
What is French history famous for?
What are Humanistic Studies?
What is covered in Biophysics?
What is modern journalism?
What is Virtualization? Benefits & Applications
What are modern public relations?
What is plasma physics?
What is teacher preparation?
What is rapid prototyping for 3D printing?
What is contemporary European Politics?
Why should you learn American Ballet?
What is engineering physics?
What is the purpose of African American Literature?
Ways to learn the Rhythm
What is digital art used for?
What are Enzymes and how do they work
Who is the father of political science?
Why Study Political Science - Job?
What is the Philosophy of Feminism?
What is a quantum computer?
Ways B2B Startups Streamline Their Conversion Strategies
Why do biomedical signals need processing?
What are the long term effects of climate change?
Why study labour relations
What is Holoprosencephaly?
What is antisocial disorder?
What are the important principles of evolution?
What is the cytoplasm and its function?
What is biopolymers?
What Makes a Good Leader
Women empowerment in modern generation
What is the history of political thought?
What is Gene recombination
What is synthetic biology
What is business cost analysis?
What is Inflation
What are the consequences of unemployment?
What is lithotripsy and its types?
What is transition elastography?
What is the purpose of deep brain stimulation?
What is a Brain-Computer Interface (BCI)
What is neuroethics?
What is Market and Supply and Demand
What is optogenetics?
What are the techniques to record brain activity?
What happens if the interest rate increases?
What is immunotherapy?
What is the economic role of the financial market?
What are the factors behind illegal immigration?
What is the lymphocyte activation?
What is financial market and its types?
What is the structure of financial markets?
What are the methods of measuring business performance?
What is the Credit market?
What is business ethics and code of ethics
What are the Causes of financial instability?
What is MBA with Concentrations
What is regenerative medicine?
What is Population ecology?
What is Microfinance: evolution, and practices?
What is biotechnology and its applications?
What are Workplace diversity and its benefits?
What is the difference between a leader and a manager?
What Is Branding and best branding Business strategies?
Why are microelectronics important?
What are biologic drugs.
What is the Foreign Exchange market?
What is the role of scientific research in times of crisis?
What are the risks of international trade?
What is financial management?
What is gene therapy?
What is education economics?
What is regression analysis, and why should you use it?
What Is Technology Marketing And How Should It Work?
What is Management Accounting
What are the methods of valuation of companies?
What is Immune System and Immunotherapy?
What is big data analytics?
What is the 7 layers of OSI model?
What is Neuroplasticity?
What are Sculpture art and its types?
What are the different genres of films?
What is Transcranial magnetic stimulation (TMS)?
What is TES-Transcranial electrical stimulation?
What is Relativism?
What is Vaccine skepticism, and what to do about it?
What happens in the brain when learning?
What is the deep neural network?
What is Convolutional Neural Network
What are the linear models in machine learning?