October 25, 2020

What is Forex? Learn about the Forex Market

Financial markets under 4.0 technology are pulling things closer to people than ever before. Therefore, there are many different financial channels for investors to choose such as securities, real estate, gold investment, stocks … However, in addition to the channels we mentioned above, there are 1 Extremely attractive investment channel not to be missed. That is forex. A truly potential investment channel that you cannot ignore in the current era. So what is Forex? Why is Forex attractive so many people?

What is forex?

Forex stands for Foreign Exchange, ie international currency exchange. The forex market (forex market) is the place where countries exchange their currencies through banks and credit institutions.

When you hear from Forex you may think they are really strange. And always assume that only when traveling, going to the bank to buy, sell foreign currency or buy on hoarding can be considered forex trading. Correct! But not enough!

In fact, forex trading is a daily routine. Individuals like me or you, though not directly involved, are also indirectly involved in this work.

A very simple example, currently thanks to the development of the economy, the goods you use may be imported from one country such as Japan, South Korea, the United States or European countries. Au …
But it is you who indirectly will participate in forex trading after this trade. Because companies that import products want to sell, they are required to convert foreign currency from VND into the currency of that country to import or buy products.

And if the company sells this product to anyone, and (possibly) the sale proceeds back to the supplier so the supplier can continue to import the product, sell it to their customers. The cycle continues like this. So forex though “strange” but actually very “familiar”.

And of course this is most evident when we travel, study abroad or do any action that has the exchange between the local currency for foreign currencies. This is the most obvious action of an individual participating in forex.

What is the Forex market trading?

Although, forex at the present time offers traders 600 different products such as commodities, precious metals, stocks, cryptocurrencies, bonds, indices … But among these currencies forex still accounts for the majority. number. In addition, because it is always traded in pairs, 1 in 2 units will also have the name of a certain currency.

Not to mention, the trader himself is only using Money as the only instrument participating in forex. Whether the product you want to Buy or Sell is gold, oil, corn or soybeans. This is because traders trade on CFD contracts. So it is not necessary to own them, just rely on the fluctuation of prices to make a profit.

Size and liquidity of the Forex market

The foreign exchange market operates continuously 24/5 from Monday to Friday weekly. Unlike the traditional market, the forex market does not have a specific trading center but through terminals to connect and trade. Therefore, wherever there is internet, it is possible for humans to trade forex.

Within 10 years, the volume of foreign exchange transactions has nearly doubled. The reason for this is because the development of internet technology has helped diversify forms of payment, making exchange activities soar. Especially, with the appearance of retail investors participating in the market, forex has grown more than ever.

One thing that makes forex better than the stock market, thanks to forex is an OTC decentralized market, where brokers and participants will talk directly to the other party, without must exchange in a centralized floor or 1 “floor” (marketplace) that will go through the “counters” of traders and dealers (such as small traders, dealing with brokers via MT4 software, not need to go to a location, an office can be traded).

In the past, the number one financial center in the world was London. However, after the British “shirt” removed from the EU has made this throne into the hands of New York.

According to figures in 2016, of the International Payment Bank (BIS), the average daily forex trading volume reached over 5000 billion US dollars, 20 times more than the US stock market and 15 times higher than the market. US bonds.

However, this number has increased to US $ 6595 billion in average daily trading volume in 2019, according to BIS.

Can see forex is really too potential market. Certainly, with the momentum of development like this, forex trading will not stop at 6,600 billion USD but it will increasingly increase in the near future.

Who is involved in forex trading?

If you use Tradingview for technical analysis, you will see that there are many different price providers for the same currency pair. However, very few people pay attention to this problem, because the extremely small difference is usually only in the 4th and 5th decimal places.

This is because the forex market is stratified according to different levels. The largest of these is Tier 1 pricing, including commercial and investment banks, which account for about 60% of transactions in the foreign exchange market. Their customers are smaller banks, large multinational corporations, large hedge funds, and forex brokers or retail market makers. In addition, central banks also participate in forex to stabilize currencies for their country’s currencies.

Because of such stratification, traders are classified as “puffed up” among the above components, because the price of the trader has to go through several different “doors” intermediaries, not to mention it must be subject to A few additional fees from forex floor collection such as: swap fee (for overnight orders), spreads, commission.

Central bank

The central bank acts as a market activity coordinator, balancing the balance, creating a balance to create capital for the market and stabilizing the economy.

The central bank impacts the market either directly or indirectly depending on the stage of the economy. The tools used can be money injection or withdrawal through fiscal or monetary policy. Central banks most affected by the market include: US Federal Reserve (FED), Bank of England (BOE), Bank of Japan (BOJ), European Central Bank (ECB) ), Central Bank of Canada (BOC), Reserve Bank of Australia (RBA), Reserve Bank of New Zealand (RBNZ).

Sometimes, the Central Bank will also participate in the forex market, in order to balance the participating forces, making it easier for the government to manage currencies. In other words, the Central Bank does not overreact to market participants, especially with needs, or in short-term funding plans. Many countries earn foreign currencies from international trade. The terms of trade will help them increase the amount of foreign exchange. As a result, governments of any country will reserve a large amount of foreign exchange to meet domestic currency demand.

International Monetary Fund

Governments and banks will sometimes have to borrow money from international lending agencies and organizations such as the World Bank, especially the International Monetary Fund (IMF) and International Finance Corporation (IFC). In addition, there are regional lending organizations such as the African Development Bank (AFDB), the Asian Development Bank (ADB) and the European Development Bank (EDB).

These banks lend to developing economy banks on a variety of terms. The main purpose of financing social projects includes infrastructure development, or stimulation of economic activity in several priority areas. This will stimulate demand and promote domestic foreign exchange market transactions.

Trading company

An important part of the forex trading market comes from the financial activities of a commercial services company to pay for goods and services. Compared to banks or speculators, these companies will trade forex with less volume, and will not have much impact on market interest rates. However, trade flows are an important factor in the long-term direction of the exchange rate. So some multinational companies can have a huge impact on the market if they hold a large supply of money.

Commercial Bank

A place to execute all orders and market liquidity. Therefore, commercial banks are often considered as one of the most important parts, without which the market cannot operate. Simply understand that commercial banks receive money from sellers and sell money to people in need, thereby creating a cash flow to promote economic development.

Investment funds

Investment funds enter the market for investment purposes, earning profits. The amount of money used to participate in the market of these funds is enormous. Therefore, their deals can cause the market to fluctuate, typically such as SPDR’s gold trading fund. However, due to the large amount of money and professional analysis team, the funds usually have medium and long-term trading status, and are often the ones who go ahead, creating great liquidity for the market.

Brokerage floor, forex floor

Brokers act as a bridge between individual investors and organizations to participate in the market. In the previous period, when the financial market was local, each minimum transaction would require from $ 100,000 (more than 2 billion vnd), a large amount of money, making it difficult for small individuals to participate. forex investment.

However, thanks to the appearance of forex trading floor, it made extremely small simplicity for forex investors’ trading. Instead of having $ 100,000, traders can enter the market for just a few tens of dollars. Even, with only 1 $ you can buy and sell at some forex trading floor.

As it is said, forex floor is essentially the intermediary connecting small traders with liquidity providers. So the forex’s job is to find a price provider and use this price to provide traders. Because there are many liquidity providers, prices may vary slightly, depending on the partner that the forex broker chooses.

As an intermediary distributor, prices are coordinated to the trader through a broker. Therefore, there will be two main types of forex floor: the forex (Market Maker) and the forex (ECN).

Simply put, the forex or broker is almost like a registered secretary. It is responsible to enter the numbers from the retailer, then send the numbers or signs to the topic and earn a commission. But a lot of secretaries, instead of turning over the board, say they will keep or “hug” the board to make more money. If in the secretariat hug, no one wins, then they will eat bold, and if someone wins, they will have to pay this amount for the people who register from them.

Forex trading floor also works similarly (only the way it is organized and many other stages will be much more sophisticated). Exchanges can also take orders from the trader himself to pay commission and spread fees. As for the actual ECN, the exchange will push orders to a partner to provide liquidity. And forex will only benefit by commissions from traders.

Despite knowing that, traders are required to go through forex brokers in order to trade forex. Because traders are only “small fishes” who buy or sell in very small quantities and cannot trade very large amounts, they can offer liquidity providers a better price.

Therefore, there are currently many fraudulent forex brokers seeking to hug money (such as secretaries hugging the board) of traders. So to avoid mistakes, choose reputable forex trading floor to trade.

Trader or individual investor

I or you, who are reading this article, are all small individual traders, also the most “low-throat” among the participants in forex trading! Not only do not enjoy good prices, but in many cases of bad luck trading at unexplained forex exchanges, even being hugged all money leads to “losing both lead and fishing”. In fact, any industry has its advantages and disadvantages. And to enter this market, always be a lucid, unexperienced forex trader in any case.

Forex market transactions almost never sleep

In addition to high liquidity, Forex is probably the only place to help investors make money 24/5 if you have enough power!

In forex, there will be 4 main trading sessions: Sydney session, Tokyo session, London session and New York session, this is also the largest financial center in the world today. Thanks to the geographical location located on 4 different continents, 4 forex trading sessions are also known by shorter names such as Australian Session (Sydney), Asian Session (Tokyo), European Session (London) and US session (New York).

These sessions are continuous, one after another, one session after another, as you look at the time frame in the image above. You can have breakfast and trade Asian session with financial center in Japan. After lunch break, will resume work with European session. At the same time, can end the working day with the US session.

Everything is circulating continuously from 4am on the 2nd day to 4am on the 7th day. More specifically, the forex market does not distinguish who you are, where you are and how you finance, as long as you have internet and want to trade, there is absolutely a place “to trade and work”. .

Why should you invest in Forex?

High liquidity

Liquidity is the speed of conversion from goods or assets to money, the faster the conversion speed is corresponding to the higher liquidity and vice versa. If anyone has ever invested in Vietnamese stocks, the time from buying stocks to selling stocks takes 4 days. However, if participating in the forex market that time will be calculated in a snap even by applying some advanced technology such as ICMarkets, for example, the time from placing orders, transferring orders to the floor and matching orders only 40 milliseconds!

Two-way trading market

Bidirectional trading markets allow finding profits both when the market is rising and when the market is falling. If you rely on technical analysis, or a certain source, or you believe that the pair is in an uptrend, you will choose to buy or Buy. On the contrary, if you think the market is bearish you will choose to sell or Sell.

So compared to stocks, it is clear that forex investors have 2 options, and no matter the situation, traders have the opportunity to profit. So, forex really is never outdated.

In addition, you can trade forex anywhere, anywhere, whenever you want! Even if you are enjoying travel, you still make money. A career without “retirement” like forex, you can completely trade until old, as long as you can afford to stick with the market.

High financial leverage

This is probably the most impressive advantage of the forex market. Without leverage, traders would never be able to trade forex with a meager amount, from a few odd coins to several hundred dollars, several thousand, even tens of thousands, hundreds of thousands of USD.

That’s why, before the internet, brokers or liquidity providers created forex “games” with “rules of the game” that used leverage like this, forex was really just “acting ground”. of “big hands” in the banking market, investment funds or only a few outstanding individuals like George Soros can participate.

After the Bretton Woods Accord agreement ended. In 1971, according to the Smithsonian agreement, formed by a group of the top 10 countries in the world, accepted a floating exchange rate, allowing the currency fluctuation range to be expanded from 1% (in estimated Bretton Woods Accord) to 2.25% against the USD. Thanks to that, the volatility of the currency is actually extremely small, almost hard to recognize, unlike BTC, each change can increase or decrease $ 100.

Therefore, to be able to make a profit, you must have a large amount of money to buy and sell. Without enough money to work on, being unable to participate in forex trading is very obvious.

However “financial leverage will be pleased to sponsor this program”, allowing you to join forex for just 1 USD.

Financial leverage is a support service from forex brokers, helping players who only need a small amount of capital to trade with larger sizes and volumes in order to profit.

Suppose you plan to deposit USD 100 into a certain forex trading floor. With that much money, if you don’t use leverage you will be hard to trade. However, if you use a leverage of 1: 500 you can hit a maximum of 0.5 lots. As such, leverage has greatly helped traders in the forex trading process. The level of leverage will range from 1: 1 to 1: infinity depending on the floor.

Anything is double-sided and it’s not gratuitous for many to think that leverage is a double-edged sword. It helps traders to make money from forex with a small capital, but the leverage will also make the account “burnt” too much, if too bloody and also not know how to manage capital.

Transparent information

One financial report in Vietnam and one report in the US would you rate which report is higher? When the economy gets bigger, the quality and prestige are always the top priority. The forex market provides all the information at the same time, anywhere in the globe, economic calendar – economic events are informed to investors beforehand, so they can capture the information. and plan transactions.

Some terms to know in the forex market

In any industry, there will be highly specialized terms that need to be understood to participate. In particular, in conversations between traders, if you do not understand, will not know what they are saying. For example, “today you can eat 10 gold pips”; “Just cut 2 lots EURUSD”; “Why is this spread spread so unknown” or “com fees on this forex floor are high?” …

And of course, no one is free to sit and explain to you what each Pip concept is, what is a lot, com fee or what is commission fee. If you want to join the forex, learn these basics first.

Where to start trading forex?

Thanks to the development of marketing communications, many people believe that forex is really an attractive industry. However, there are no roads full of roses. To reach the top of glory, all must go through a lot of different difficult times. Forex is no exception!

Therefore, you should slowly and slowly participate in the market. Equip yourself with all the necessary knowledge, even learn from the simplest things, familiarize yourself with the whole concept, the terms in forex, before thinking about making money from forex!

There are many ways to access knowledge, for new friends start from the basics. You can see our forex investment guide article, for the whole forex trading process.

In addition, the section of forex classes compiled by kienthuforex not only provides articles but also a lot of videos, presented from basic to advanced levels, to help you grasp the most necessary things to Participate in forex trading.

You can also refer to the basic, briefest process as below to understand what steps to participate in forex trading.

Step 1: Find reputable forex floor

Step 2: Register forex account at forex floor

Step 3: Download the MT4 software, log in to the MT4 software

Step 4: Add money to your account

Step 5: Find a pair of exchange rates to place orders, then can close orders if the profit or loss.

Step 6: If the transaction is profitable, withdraw money, if burnt, continue the rotation from step 4 onwards.

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