What is Forex?

At first the currencies quoted with respect to gold, having the dollar a fixed price of 35 dollars by ounce. In 70’s due to the war with Vietnam, the United States had to face a strong outflow of capitals. Richard Nixon decided to remove the convertibility of the dollar against gold and devaluated the dollar a 10%. And from 1971 -73 when major currencies began to fluctuate freely.

In the year 1972 Future contracts of Currencies were introduced at the Chicago Stock Exchange nowadays known as Forex Exchange, Forex, FX or Retail Forex.

Therefore in the forex market are handled Currencies of each country. The pairs are represented as follows XXX / YYY, where XXX is the currency of a particular country, for example, EUR / USD. Where EUR represents the Euro and the USD Dollar.

Think of a balance, which will compare the weight of the EUR and the USD, where the EUR and the USD represent one share of each country in the balance proceed to compare the economies of both countries represented by their currencies. Because their currencies represent their economies and therefore reflect the current health of their economy, or the future based on a fundamental analysis (and explain what is a fundamental analysis). And therefore that coin with a healthy economy will rise while the other currency with a less healthy economy will fall.

There are two types of markets, centralized and decentralized. The stock markets of each country are centralized markets, NYSE (New York Stock Exchange) is a clear example of a centralizad market , on the other hand Forex market is a decentralized market , and this is why it is not operated by a single stock market such as New York , in this case is with several stock markets, which is why there are several sessions. The main trading centres are the London Stock Exchange, New York Stock Exchange and the Tokyo Stock Exchange.

The currency market or Forex market is a "extrastock" and therefore it is also known as "Over The Counter" or OTC, since there isn’t a centralized stock in which the operations are traded. Because there are several Stock markets around the world to trade, is a market of 24 hours, and that is why is an electronic marketplace that is integrated within the interbank system.

This market was dominated in its principles by major corporations, banks, as well as large investors, and the requirement to be taken to have a big account. Forex is a market which originally was prepared to banks and large financial institutions, hence it is integrated into the interbank system.

But with the arrival of the Internet, the barriers were broken giving an opportunity to people to invest in Forex. Today, banks and large institutions will no longer monopolize the market due to the large number of people who operate in Forex.

What currencies are traded in Forex?

As we can see in Abbreviations currencies are expressed with three letters (ISO code 4217), where the first two letters represent the country (Code 3166-1) and the third letter indicates the currency. So in JPY, JP represent Japan and Y represent Yen.

As we have said forex market is a decentralized with several stock markets operating in the world, and therefore there is always a stock market trading, which gives the possibility to traders realize their operations at any time of day.

Of course, you can find in one of the major time zones which will help you get good benefits, if you are not in that area your benefits may be lower.

Here is a table of the existing timezones:

Which are the benefits of Forex?

No Commissions: The only existing cost is the spread, which is the difference between the purchase price (bid) and selling (sell) of the currency. This percentage may vary from one broker to another. There are no other charges such as account management, taxes ....

No Intermediary: In making transactions through the Internet via a platform normally provided by the broker eliminates the middleman you can make yourself transactions to buy or sell of a given currency at a current price.

Low Costs: Virtually all brokers have 0% commission. As we said the cost comes from the spread, which tends to be low. Under normal conditions usually can be 0.1% may be less than that depending on the broker as well as the leverage with which we open the account. In times of high volatility the spread is high by the brokers.

24 Hour Market: As we said Forex is open 24 hours, which allows investors anywhere in the world do the operations.

No fixed lot size: Due to the variety of brokers, each broker provides its own lot sizes. Hence, many brokers offer you can open an account from 250 dollars, which we do not recommend.

Leverage: The brokers offer us various types of leverage. Leverage basically is that with a small amount can make big purchases. This means that a trader with an account with a 100:1 leverage can open a position of $ 100,000 with only 1,000. But leverage can be a double-edged sword that can play in our favour or against depending on the risk as we handle in our account. Leverage can make us to have big losses or big profits.

High Liquidity: Forex is a market that handles $ 2 trillion in transactions a day. So the price of a particular currency is not stalling because there will always be people buying or selling.

Accounts varied: Many brokers are offering a variety of accounts, ranging from accounts Demo, which is good enough to practice in Forex, the "Standard", the "Mini" and the "Micro". We recommend opening an account "Mini" with $ 1,000, a "Micro" with $ 10,000. Many brokers offer accounts openings lower at $ 300 but as we will explain later we not suggest you to open an account with that amount.

Specialization: The brokers offer a variety of currencies but you as a trader can specialize in certain currencies concentrating investments in those currencies.