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What is forex trading?

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What is forex trading?

The Forex market takes place anywhere in the world where currency can be traded. The market runs all hours of the day regardless of whether banks, the stock market, or other corporations are open. People trading within this market need to realize that it is a 24/7 business that needs a great deal of time in order to become profitable. Users trade over $3 trillion daily which has boosted this market into becoming the largest one in the world.

Unique Qualities of the Forex Market

The Forex Market involves a vast numbers of traders that are dispersed all over the world. This would not be possible without the use of the internet so that is why most companies tell you that you can trade Forex from anywhere in the world as long as you have a computer.

The market is said to be very close to that of perfect competition, but let’s keep in mind that 70% of the market is held within the top 10 traders. These main traders in the market are large banks that help provide the market with bid and ask prices for more common customers.  In  a normal day, the bid and ask prices generally have spreads between  0-3     pips so many users do not lose or gain much in one day.

Market Makeup

Unlike other types of markets, the Forex market is split up between different players. A player from one group cannot access prices from a different group. Becoming part of a group is based solely on the amount of currency you trade daily.

The main and largest group is known as the Bank group and it is comprised of the largest banks that control the most money in the market. Most insiders do not even know about the spreads taking place in this group as it could greatly benefit their trading decisions. Some banks do have customers that they trade for in this market, but the large amounts are done for the bank itself.

The next group involves smaller types of banks, but some of these players do move up to the first group. These banks trade large amounts of funds, but they do not exhibit as much power which is held in this upper tier.

Large commercial companies generally trade a small amount of money                  and do not affect the market nearly as much as the banks. Some participants do have inside information about these companies which creates a large pay day when the company makes a huge transaction.

Other smaller groups are formed below this point such as hedge funds and retail Forex brokers. Each of these groups still makes up a good percentage of the market.

Other Market Factors

The market is not only split up into groups, but the currencies are also split up into different groups based on whether it is considered a major or minor currency.

Some of the major currencies in the market include the US dollar, the British pound, the Japanese yen, and many more. While the minor currencies would include smaller third world nations that have not developed as much as the main players.

This market is very unique as currency can be traded at all hours of the day. Looking at graphs, keeping up on current affairs, and putting   in the time are all ways the market can become easier to follow.

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