A foreign exchange or Forex trader, also referred to as a retail Forex trader, is a person that seeks to obtain profit through buying and selling various currencies on the foreign exchange market. Traders employ a number of techniques, including spot trades and forward options, and make use of various software programs to increase their chances of successful trading.
Foreign currency exchange, or Forex, is the largest financial market in the world. It is sometimes also referred to as the FX market. Traders speculate on the values of currencies, and they profit from accurate predictions in exchange rates. The Forex market has many characteristics that differentiate it from the trading process of other markets. But ultimately, the Forex market is a volatile, auction-based system not unlike the stock market and other financial markets. Risks remain high.
The amount traded on Forex exceeds all the world's equity markets combined. Due to the evolution of the Internet based trading platforms, this market is no longer exclusively available to investment professionals and continues to expand rapidly.
Also, due to the time differences around the world, Forex trading takes place continuously because as one market closes another one opens.
Retail Forex traders
The retail Forex trading industry is growing everyday with the advent of Forex trading platforms and their ease of accessibility on the Internet. Retail Forex traders access the market indirectly either through a broker or a bank. There are two main types of retail Forex brokers that provide traders with the ability to speculate on the currency market:
- Brokers work as an agent for the trader by trying to find the best price in the market and executing on behalf of the customer. For this, they charge a commission on top of the price obtained in the market.
- Dealers are also called market makers because they ‘make the market’ for the trader and act as the counter-party to their transactions, they quote a price they are willing to deal at and are compensated through the spread, which is the difference between the buy and sell price.
Advantages of trading the Forex market
- Forex is the largest market in the world, with daily volumes exceeding $3 trillion per day. This means dense liquidity which makes it easy to get in and out of positions.
- Trade whenever a trader wants: There is no opening bell in the Forex market. A trader can enter or exit a trade whenever they want from Sunday around 5pm EST to Friday around 4pm EST.
- Ease of access: A trader can fund their trading account with as little as $250 at many retail brokers and begin trading the same day in some cases. Straight through order execution allows them to trade at the click of a mouse.
- Fewer currency pairs to focus on, instead of getting lost trying to analyze thousands of stocks.
- Freedom to trade anywhere in the world with the only requirements being a laptop and Internet connection.
- Commission-free trading with many retail market-makers and overall lower transaction costs than stocks and commodities.
- Volatility allows traders to profit in any market condition and provides for high-probability weekly trading opportunities. Also, there is no structural market bias like the long bias of the stock market, so traders have equal opportunity to profit in rising or falling markets.
While the Forex market is clearly a great market to trade, it is important to remember that trading carries both the potential for reward and risk. Many people come into the markets thinking only about the reward and ignoring the risks involved, this is the fastest way to lose all of their trading account money.
Next: Online Stock Traders »
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