Category: Beginner Forex September 19, 2024

Trading in the Currency Market

Currencies are bought and sold against the US dollar or against each other, which is known as currency pairs. Trading in currencies is considered more profitable than trading on stock exchanges.

Currency prices undergo significant fluctuations, which facilitates various trading operations within a single day. It is well-known that downturns can greatly affect financial markets, potentially leading to crashes in stocks or bonds. However, in the forex market, a decline in the US dollar (for example) means an increase in the value of another currency, without any crash similar to what occurs in stock or bond markets.

The forex market consists of four regional markets: Australian, Asian, European, and American. Trading continues on all weekdays, while the market closes on Saturdays and Sundays, operating 24 hours a day. A relative calm is observed from 20:00 to 01:00 GMT, attributed to the closure of the New York Stock Exchange at 8 PM and the opening of the Tokyo Stock Exchange at 1 AM. With the advent of technology and the internet, it has become possible to open accounts and trade in international markets with companies and banks from around the world, including London, Hong Kong, the UAE, and Dubai.

One of the key features of trading in the forex market, in addition to its rapid fluctuations, is margin trading. This involves reserving a small amount from your account (e.g., $1,000) to purchase a larger amount (e.g., $100,000), referred to as a “lot.” You profit or incur losses based on the movement of the currency, commodity, or metal you bought or sold. Although this type of trading may seem simple, it is one of the most profitable ways to trade, allowing substantial gains in mere seconds due to economic news, interest rate changes, natural disasters, or other economic factors.

Another important characteristic of the currency market is its stability, which might seem surprising. Everyone knows that a fundamental property of financial markets is their sudden downturns. However, the forex market differs from the stock market in that it does not crash. When stocks lose value, it is considered a collapse. Conversely, if the dollar declines, it simply means that another currency has become stronger—for instance, the Japanese yen, which appreciated by nearly a quarter against the dollar in just a few months during 1998. The dollar’s decline at that time reached tens of percent over several days. Nevertheless, there was no market crash, and transactions continued as usual. This illustrates the stability of the currency market and its related activities, as currency is considered a fully liquid commodity that can be bought or sold at any time.

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