Forex Systems & Software
Foreign exchange is the most liquid financial market in the world. A daily turnover of $4 trillion in volume represents the largest asset class in the world. Unlike stocks and related instruments, the currency market is open 24 hours excluding weekends and major holidays. The explosive growth of trading in currencies has partially resulted from the stability of foreign exchange rates that are unlikely to result in major spikes. Furthermore, the introduction of huge leverage and low account maintenance has allowed small investors to cash in on a potentially lucrative income stream.
Regulation
Interestingly the over-the-counter nature of the FX marketplace acts as a self-regulated market due to a number of inter-connected smaller players. Accordingly, large numbers of different market players make it very difficult for arbitrageurs to dominate a particular segment. Currently, there is no central regulating body. Every region is governed by various reputable authorities including NFA, CFTC, and FSA. Just years earlier, Chicago Board of Exchange, Reuters and another well-known clearing house tried to invent a central market mechanism but without any significant result. However, experts still consider the currency market the most transparent trading environment.
Types of Instruments
Among the most traded currencies are United States Dollar, Euro, Japanese Yen and British Pound. As illustrated below, US Dollar represents a significant share of daily turnover.
United States dollar 84.9%
Euro 39.1%
Japanese yen 19.0%
Pound sterling 12.9%
Australian dollar 7.6%
Swiss franc 6.4%
Canadian dollar 5.3%
Hong Kong dollar 2.4%
Swedish krona 2.2%
New Zealand dollar 1.6%
Currency Pairs
Traders aspiring to invest in the Forex market do not trade in a single currency. Instead, FX instruments are represented as pairs. Due to the heavy trading, popular currency pairs involving US dollar are called major. Major include such pairs as EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, USD/CAD and NZD/USD. For ease of distinction, popular pairs that do not include US dollar are known as Crosses. Some well-known crosses are GBP/JPY, EUR/AUD and EUR/GBP. Since EUR/USD is the single most widely traded pair, it is often called Fiber. Some other nicknames are cable for GBP/USD and Auusie for AUD/USD.
Players
Major players in foreign exchange markets are large banks, commercial companies, central banks, commercial banks, speculators, hedge funds, Forex fixing companies, investment management funds, retail traders, individuals, foreign exchange organizations and money transfer firms. All these players intervene to establish supply and demand quotes. The three largest foreign exchange centers are London, New York and Tokyo. Consequently, six European and four US banks constitute the top 10 currency traders including such prominent names as Deutsche Bank, Barclays Capital, UBS AG, Citigroup, and Morgan Stanley.
How to Trade?
Before trading in Forex, it is important to understand the mechanics of currency exchange. There are numerous websites and books that provide basic information on the dynamics of trade. After grasping a basic knowledge of operations, potential investors should open an account with a Forex broker. Almost all brokers offer a demo account that does not require any authentication and offers a chance to mimic real-time trade. Understanding the platform is as important as acquiring knowledge of the trade. The most well-known Forex trading platform is MT4. Recently, some brokers have also started offering a newer version, MT5. MT5 is still in a transitional stage therefore it is better to opt for the reliable MT4. Some brokers also offer their own version of Forex platforms.
Forex System
Most platforms allow traders to view historical quotes in a graphical format. This feature is mostly free of charge. New investors should always analyze historical quotes to build a reliable strategy. Once investors have developed a Forex system, it is time to test it in demo mode. Experts suggest that demo-testing should last at least three months. MT4 also allows automatic back-testing. Once sure about the possible outcome of a Forex strategy, investors should start from investing small and gradually add extra funds.
Before Trading
The charm of Forex trading lies in the flexibility of designing a Forex system. The nature of Forex trading allows intra-day traders, swing traders and long term traders equal opportunities without any restrictions on minimum balance. Still, US authorities have implemented rules to discourage scalpers. The discussion is beyond the scope of this topic but investors wishing to day-trade on 1 minute and 5 minute charts should read about new rulings. On the other hand, European based brokers that do not follow US regulations may assist scalpers who want to play by the rules. Precautions should also be taken when trading during news hours. Price spreads during these hours can be quite large when compared to normal trading hours.
Professional advice should be sought regarding all financial services. These can be obtained from financial planners and advisors specializing in financing, loans, accountancy and tax related matters.