Forex is a marketplace where different currencies and currency derivatives are exchanged. Forex is a merged word for ‘foreign exchange.’ It is the largest and most liquid market globally, with billions and trillions of dollars being exchanged every day. The trading volume is very large here. It is an electronic network of banks, institutions, brokers, and individual traders and has no centralized location. A number of entities with currency needs, from financial institutions to individual investors, post their orders to buy and sell currencies on the network in order to interact with other currency orders from other parties.
Retail traders have to open a forex account to buy and sell currencies. Either a profit or loss results from the difference in the price at which the currency pair was bought and sold. Another way to participate in the forex market is through forwards and futures. Forwards are customizable, whereas futures are not customizable.
The market is open 24 hours a day, five days a week, excluding holidays. However, it is open on many holidays when stock markets are closed. Investing in the FOREX market can be highly profitable for various reasons.
As compared to other stock markets, the forex market doesn’t have too many rules and regulations. There are no central bodies and clearinghouses to oversee the market. This makes it more convenient for the investors, as they do not need to keep all sorts of strict guidelines in mind before exchanging currencies. One can short-sell at any time, as in this market, one is never actually shorting; if they sell one currency, they are buying another.
A leverage up to 50:1 in the U.S. is allowed in the FOREX market, and it is even higher in other parts of the world. This becomes very profitable to the traders, as they can open an account for a certain amount and trade fifty times that amount in currency. Leverage is extremely powerful since it shows both profits and losses.
Since the market is open 24 hours a day, one can trade at any time of the day, except on weekends and when no global financial center is open due to some reason. As a result, traders don’t need to wait for announcements on when they can or cannot trade in the market. This is one of the major conveniences.