The forex market is the world's largest and most liquid market, with millions of dollars in circulation. It has no central and physical location. Forex is controlled by the market regulators of the countries. In Turkey, it is controlled by the Capital Markets Board (CMB).
Forex began with the collapse of the Bretton Woods system in the early 1970s when currencies fluctuated more freely against each other. The values of currencies are determined by supply and demand.
Most forex trading is done through banks and financial institutions. Forex participants all set global exchange rates. More influential in the forex market are the large institutions that account for the bulk of trading. Forex traders interact directly with each other.
Forex trading is speculative and forms part of hedging strategies. Forex trading is used to buy assets from another country. Most transactions take place in spot markets. Forex is used to exchange a large amount of any currency for an equivalent value in another currency at the current market rate. For instance, a company based in Turkey might trade Turkish lira for euros to pay for goods ordered from Germany.
Why Forex?
The forex market is the largest financial market in the world. It is generally considered a lucrative place. The Forex market is not only about speculation. Large banks, corporations, and parties in need of foreign currency carry out Forex transactions for international transactions. Companies or institutions make deals on Forex rates to fix the cost of future exchange rates. This agreement is called hedging. Forex is also used for economic purposes, such as building up government reserves and increasing imports/exports.
Forex markets are active 24 hours a day, 5 days a week. Forex transactions can be carried out online via computers in a simple way at any place or time. Transactions in the Forex market are carried out only based on changes in prices. Therefore, transactions are secured and executed faster.
How Does Forex Market Work?
Forex transactions take place online and directly between two parties. The parties are connected by electronic communication networks. When a party places an order through a device connected to the internet, it is instantly transmitted to the market. Forex executes transactions instantly due to its high trading volume effect.
What Are the Uses of Forex Markets?
In general, Forex markets have many uses. Some of these are as follows:
- Use for Hedging
- Use for Speculation
What Is Use for Hedging?
Companies or institutions operating internationally are at risk due to fluctuations in exchange rates when trading goods and services outside their domestic markets. Forex markets protect from exchange rate risk by fixing the rate at which transactions will be completed.
What Is Use for Speculation?
Factors such as interest rates, trading flows, tourism, economic strength, and geopolitical risk affect the supply and demand for foreign exchange. This causes fluctuations in the Forex markets.
How to Start Forex Trading?
There are some steps to start Forex trading. These steps are as follows:
- Learn about Forex.
- Create an intermediary account.
- Develop a trading strategy.
- Have a good command of numbers.
Learn About Forex
Forex trading is a project and requires specialized knowledge. A beginner should know all the details of Forex trading operations.
Establish an Intermediary Account
To start Forex trading, a Forex trading account must be established with an intermediary firm. Forex brokers do not charge transaction fees. Brokers earn money through spreads between bid and ask prices.
Develop a Trading Strategy
While it is not always possible to predict and time market movements, having a trading strategy can help to set a roadmap for trading. A good trading strategy is based on the reality of the user's financial situation.
Have a Good Command of Numbers
Once trading is started, positions should always be checked at the end of the day. Most trading software provides a daily accounting of trades. Users should make sure that they have enough cash in their accounts to make trades.
What Are the Charts Used in Forex Trading?
Three types of charts are used in Forex trading. These charts are as follows:
- Line Charts
- Bar Charts
- Candlestick Charts
What Is Line Chart?
Line charts are used to show trends for any currency. The charts have curves drawn on them. A line chart is the type of chart commonly used by Forex traders. It shows the closing trade price of the relevant currency for the time period specified by the user. The line chart is generally used as a starting point for analyzing trading transactions.
What Is Bar Chart?
Bar charts are used to represent specific time periods for trading. Bar charts provide price information. Each bar chart represents one trading day. It covers the opening price, the highest price, the lowest price, and the closing price for trades. The colors on bar charts are used to indicate price movements. The color green or white is used for periods of rising prices. For periods of falling prices, the color red or black is used.
What Is Candlestick Chart?
Candlestick charts were first used in the 18th century. Candlestick charts are considered easier to read than other charts. The upper part of the candlestick chart is used for the opening price and the highest price point of a currency. The lower part represents a period of falling prices. Candlestick charts are used to determine market direction.
What Are the Advantages and Disadvantages of the Forex Market?
Advantages of Forex market:
- The Forex market has the largest trading volume. Forex also provides the most liquidity. Transactions are executed more quickly and easily than in most market conditions.
- The Forex market is traded 24 hours a day, five days a week. It offers various opportunities to make profits and cover losses through its wide-time coverage.
- Automation of the forex market helps to implement trading strategies quickly.
- The Forex market has a decentralized structure relative to other markets.
Disadvantages of the Forex market:
- Forex transactions are more volatile than regular markets.
- The relatively decentralized nature of the forex market means that it is less liable to regulation than other markets. Regulations in forex markets depend on the jurisdiction of the trading.
