What is Forex?
Forex – also known as the foreign exchange market, currency market or simply FX – is the decentralised global market for currency trading.
Who participates in Forex trading?
Some of those trading on the Forex market – such as multinational corporations required to pay wages and other expenses in different nations to those in which they sell products – are simply looking to exchange a foreign currency for their own. However, the market largely consists of currency traders who speculate on exchange rate movements, in much the same way as other traders would speculate on changes in share prices.
How does the Forex market differ from other markets?
Currency trading differs from such other markets as shares and futures in that it does not take place on a regulated exchange. It is an interbank, over-the-counter (OTC) market that is not subject to any central governing body or arbitration panel for adjudicating disputes. It is the most liquid market in the world, with trades dependent on nothing more than metaphorical handshakes. The foreign exchange market also operates on a 24 hours a day basis throughout the working week, between individuals with Forex brokers, brokers with banks, and banks with banks.
What are the most compelling reasons to trade currencies?
In addition to the sheer size, accessibility and liquidity of this market, Forex traders benefit from access to potentially far greater leverage than is the case with other asset markets. However, it is important to bear in mind that while such heightened leverage can help to maximise your profits, it can also do the same for your losses. Trading costs are also low on the Forex market compared to the alternatives, helped by the sheer number of buyers and sellers.
How risky is Forex trading?
Forex trading does involve risk, much like any other form of investment, with the currency markets capable of sharp fluctuations much like other markets like shares and commodities. The liquidity risk is often lower with Forex than with other markets, due to the highly liquid nature of currency trading – in other words, there is less chance of being unable to buy or sell a currency pair due to difficulty finding another market participant to take part in a transaction. However, there can be some unscrupulous brokers out there, which is why it is highly advisable to consult our reviews and ratings here at Top 10 Best Forex Trading, as well as ensure your chosen broker is registered with a regulator such as the Financial Conduct Authority (FCA) in the UK.