The Forex? What is it?
The word Forex is an acronym that stands for the Foreign Exchange, which is the international market where currencies are traded. Unlike the stock exchange, the Forex does not have a physical location itself but it plays “Over the Counter” (OTC) based on bilateral exchanges via computer where the contracting parties fix the terms of the transaction / contract. This is the value of a currency in relation to another – the so-called exchange rate. The prices of various currencies are indicative only as there are no regulations, quantity or deadlines.
HOW IT WORKS
The Forex is the transaction currency made with the purpose of obtaining from operations a profit margin. But how does it work practically?
In order to make buying and selling of currencies in the Forex market, you must use one of the special sites that deal with trading. The Forex is open 24 hours, 7 days a week, but to be successful it is useful to know which are the best days and times to be able to make purchases and sales, and have a good understanding of the value of different currencies.
THE FOREX CONTRACT
The Forex contract is entered into between two parties. On the one hand we have the trader and on the other, there is the broker. The figure of the broker is essential because an individual may not have direct access to the Forex market, but it can only be done through a bank, broker or an online trading company. In the contract of Forex, there are three fundamental elements that are right within their contract:
• What to sell and what to buy
• The exchange rate at which you perform all these operations
• the total amount of the transaction
LONG AND SHORT POSITIONS
The contract is between the two currencies and thus a single operation involves opening up a long position on one currency and short on the other. If you are planning an appreciation of the Euro against the U.S. Dollar, it is going to take a long position on the cross Euro / Dollar USA; conversely if you have a strong outlook on the European currency, it will always open a short position on the Euro / Dollar.
HOW TO APPROACH THE FOREX?
This is indeed a market that can allow those who have the ability to earn a great deal, as it is today the most liquid market out there. According to the latest data for 2013 released by the Bank for International Settlements (BIS), the average daily turnover in the FX market has risen to 5.3 trillion dollars in April 2013, marking an increase of about 35% compared with April 2010.
It must be said, however, that it does have high levels of risk. For this reason, anyone planning to start investing in this market should first of all consider the idea of opening a demo account to begin exercising and only after a certain period of time to then pass to a real account.
The experience, therefore, is crucial. To avoid mistakes, you should start from a very small investment and allocate a budget to stay within a maximum expenditure so as to stem any losses especially in the early periods.
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