Some of the most relevant markets include the Stock market, Futures market, Options market, and Foreign Exchange market. All these markets provide vast trading opportunities, and out of these, Foreign Exchange AKA FOREX is one of the most popular ones. Forex is nothing but the exchange and trade of different country’s currencies. The first Forex trading market was established in Amsterdam nearly five centuries ago, and this explains the rich history of this market.
The Forex market is the largest yet most accessible market in the world. Largest because the daily trading volume of the Forex market is above $5 trillion. To put that in perspective, the average daily trading volume of the NYSE (largest stock market in the world) is just above $20 billion. By this, we can understand the enormous size of this market. Out of this $5 trillion, retail trader transactions contribute 5% to 6%, i.e., about $400 billion. The rest of the transaction volume is from large institutions and businesses.
We also mentioned accessibility because traders have thousands of retail brokers around the globe to choose from. They can start trading currencies in this market with investments starting from just $100. Forex trading is open 24 hours a day and five days a week. It doesn’t operate on weekends. On weekdays, the market doesn’t get closed at the end of each business day, like how the stock market does. Rather the trading shifts from one financial center to others. Some of the major financial centers include London, Sydney, New York, and Tokyo.
What affects the Forex market?
One of the critical factors that most of the experienced traders pay attention to is the macro-economic trend. The forex market reacts to macroeconomic data more than the stock or commodity market. In a stock market, we have companies that are affected by micro-dynamics, which are specific to that company. But that’s not the case in the Forex market. This market is affected and moderated by GDP, unemployment rates, and inflation. The currency could react positively or negatively depending on the data, but after reacting, the trend will be maintained for a long time. The significant pairs to watch during such news releases are EUR/USD, USD/JPY, GBP/USD, and USD/CHF. The rate hikes from the U.S. Federal Reserve is also closely watched by traders around the world.
The rise of algorithmic trading
Banks and financial institutions are adopting algorithmic trading systems powered by technological advancement. Technology is changing traders’ approach towards the market. There is a boom in engineered computer programs that offer new ways of creating orders with faster trade execution. The automated systems have improved speed and precision. This technology is expected to eliminate trading bias and human errors that increase the risk in a trade. Algorithmic trading improves trend analysis that greatly helps beginners in reducing losses. Due to this, traders are getting more time to analyze markets and trends.
Future of Forex market
The Forex is continuously growing. Trading currencies is still not a mainstream profession in many of the third world countries. There are still many people who aren’t aware of the fantastic opportunities this industry has to offer. One of the important goals of the brokerage firms is to get more and more people involved in pursuing trading as a serious profession.
- Market volatility will rise as newer strategies are being released and used by traders.
- Strict regulation in the forex market will also attract conservative traders. However, some traders search for unregulated brokers since they provide inexpensive trading services.
- Paid systems and strategies will continue to grow among wealthy investors.
- Trading Forex is getting easier and extremely accessible with the advent of smartphone trading applications.
The Forex industry has changed significantly over the years. Many efforts are being made to create a legitimate trading environment as the industry has become more dynamic and ever-changing. Major European regulators are taking serious steps to tighten control of the Forex market. Besides, they are also introducing new rules to forbid high leverage trading to protect investor’s funds.
A known fact about Forex trading is that most traders fail. It is estimated that 96% of the people end up losing. To be in the succeeding 4%, one should have a disciplined approach to the way they trade. Some of the practices include starting with low capital, managing risk, controlling emotions, and accepting failures. If you follow these rules, you are on track to becoming a successful trader.
Also, education plays an essential role for someone to succeed in their Forex trading journey. We at Forex Academy designed a course just for our readers. By taking up this free course, one can learn everything about Forex trading even if they have zero experience. You can find all of our course articles here.
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