Forex is a very active market based on many mechanisms and rules. We explain these mechanisms to you and the advantages offered by this market.
How does Forex work?
Forex works as the combination of several decentralized markets. There is, therefore, not a single Forex market, but several Forex markets: in the lead, that of London, open from 9 a.m. to 6 p.m., and where nearly 40% of trade takes place daily world currencies. Then there are those of New York, Chicago and Tokyo. Here are also two important things to remember about how Forex works:
Forex is an over-the-counter market. Currencies are traded directly between market participants (brokers, central banks, companies) and not through a centralized exchange platform. Unlike traditional values such as shares, Forex is therefore not managed by a stock exchange operator as the Paris, Brussels and Amsterdam stock exchanges can be with the Euronext company.
A single body does not regulate forex. There is no single authority to regulate the foreign exchange market. Rather, there are several national regulators that oversee currency exchanges and financial intermediaries in each country. At the European level, there is the ESMA (European Securities and Markets Authority).
You need a reliable brokerage service such as CTL Markets to start trading currencies. Read CTL Markets Review and see what this brokerage has in store for you.
Advantages of Forex market
Here are some additional things for you to understand each of the benefits of Forex:
Forex is accessible.
You can start Forex Trading with low capital because Forex brokers allow you, for example, to trade the EUR/USD pair with a bet of €33. A bet that corresponds to a position of €1000, but the trader will only bet 3.33% of the funds, thanks to the leverage effect!
Forex is the most flexible market.
The foreign exchange market is open 24 hours a day, five days a week. Indeed, with the European stock market sessions being open from 8 a.m. to 6 p.m. (Paris time), the North American, Asian and Oceanian sessions take over, creating continuous exchanges.
Bullish and bearish
One can speculate on currency pairs, regardless of the trend of their quotations, that is to say upwards or downwards.
European traders can use high leverage, up to 1:30, on major currency pairs like EUR/USD. It means that the trader can only bet 3.33% of the total amount of each position!
Currency markets are ultra-liquid. In other words, it allows very high transaction volumes without much impact on prices. This, of course, varies by currency pair and time of day.
Free Forex educational resources are endless. No market is discussed, analyzed and debated so much on YouTube and stock market forums.
Forex is a very speculative market, and some currencies “move” in particular, creating more opportunities for FX Traders.
Reduced transaction costs
Unlike other securities markets, brokers on the foreign exchange markets are essentially remunerated by the spread (the small discrepancy between the buying and selling price of a currency). There is, therefore, no minimum commission of €10 typical of stock purchases.