Important Factors That Every Forex Trader Should Know
Normally, by the market, we understand a place where buying and selling activities happen. But when we say the Forex market, it is a virtual market. It is different from the other financial markets like the NYSE or London Stock Exchange (LSE) in the sense that it has no physical location.
The Forex market is also called the counter (OTC) market because the entire market runs virtually for 24 hours within the network of banks. Thus the market is extended all over the world without having a corporate location and is connected with a large number of individuals and organizations. Traders can continue their trading anytime from anywhere in the world. they just need an internet connection. So, it is very easy to understand why the Forex market is called the world’s biggest financial market.
In this marketplace, traders choose their trading platform based on the conditions, the price charts, the reputation of the other trading parties who takes the opposite side of the trade.
The Currency that Reigns the Forex Market
Among the huge number of currencies in the Forex market, The U.S dollar (USD) is the most said one. If the majors contain 75% of all the traders and the USD is one-half of every major currency pair, then there is no denying that the dollar is the king of all currency pairs. The most traded currency is the U.S dollar which has a contribution of 84% of all transactions. Then the euro holds the second position with 39.1% and the yen is third at 19.0%.
According to the International Monetary Fund (IMF), the U.S dollar makes up 62% of the world’s official foreign exchange reserves. Some reasons made the U.S dollar important in the Forex market. The first reason is the economy of the United States which is the largest economy in the world. Also, the largest and most liquid financial market in the world is from the United States. Then, the U.S dollar is the reserve currency of the world. In many cross-border transactions, the U.S dollar is the only way of exchange.
How Speculation Works in the Forex Market
One notable thing about the Forex market is that when a financial transaction is part of the trading volume, most of the currency trading is based on speculation. In short-term price movements of currency pairs, traders get the opportunity to increase the trading volume and in this way, most of the trading volumes come. The trading volume that is brought about by speculators is approximated to be more than 90%.
The Forex market is highly liquid as here the buying and selling amount is excessively high. For this reason, traders here get a large number of opportunities to trade. But remember, before you start trading with real money, you should get a CFD demo account and learn the basics first. Never start trading with real money without taking the preparation.
Liquidity is very important for a trader as it indicates how easily price can change over a given time. When there is liquidity in a market, traders get the opportunity to increase their trading volume and it paves the way to earn more profit in a short time. The Forex market by its liquidity permits huge trading volumes to happen with less effect on the price or price action. As the market is very liquid, the market depth can change according to the currency pair and time of day.
The forex market is one of the finest places to invest for its liquidity. Normally, traders like such places to invest where buying and selling are frequent because it provides the chance of more profit the Forex market is the best option for the traders to invest their money. All these qualities have made the Forex market one of the most popular financial marketplaces.