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Forex

The Forex currency market is a powerful financial tool allowing high profits from the slightest price variations on the international currencies market. The scale of the currency market is enormous. About 4 trillion dollars are sold and bought daily, and the volume of operations grows by up to 5-7% annually. This trading volume is much greater than the volume of any commodities, stock, futures or other markets (for example: the daily volume on the securities market is about 300 billion dollars, and about 40 billion on the currencies futures market). Currency market participants are quite varied, ranging from major banks to small companies to private investors, the last group being the largest. Many banks earn 60% of their profit from currency operations in the Forex market, and in some cases even 80%, as in the example in 1994 with the Union Bank of Switzerland, one of the world’s largest banks.

A bank cannot be competitive without trading in currencies. Currency operations allow a bank to be independent from the changes of a dollar’s rate, whether the bank’s capital is in dollars or any other currency. A dealing department is an integral part of any Western bank.

The Forex market is not a market in the traditional sense of the word. It has no centralized trading location, like a stock exchange. Trading can be performed via phone and computer terminals simultaneously at hundreds of banks all over the world. Thus, in practically any time zone (Sydney, Tokyo, Hong Kong, Frankfurt, London, New York, etc.) there are dealers buying or selling currencies. The currency market operates 24 hours a day and seven days a week, nonstop.

The major reasons of this market popularity among investors and financial speculators worldwide are:

  • The Forex liquidity. Forex is a market in which money and only money circulates as an asset, has the highest possible liquidity. High liquidity is a powerful attraction for any investor, as it ensures freedom to open and close positions in any volume.
  • The Forex time operations. Due to its round-the-clock operation there is no need to wait when reacting to an event, as happens with many other markets.
  • The cost The Forex market traditionally has no commission fees except for the natural market difference (spread) between ask and bid prices.
  • The Forex market quotes single value Due to the high liquidity of the market, practically unlimited sales can be made at single market prices. This helps to avoid the uncertainties of futures and other stock investments where only a limited number of contracts may be sold at one time and at a specific price.
  • The Forex market margin The leverage (margin) on the Forex market is determined by an agreement between a client and the bank or broker who provides access to the market. For example, having a deposit of 3,000 dollars and the leverage of 1:100 a client can make deals for a sum equivalent to 300,000 dollars. The availability of such high leverage, along with heavy currency rate volatility, makes the market very profitable.

 

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