The Foreign Exchange (FOREX) market is the world’s largest market, in terms of volume traded. It serves as a market for exchanging currencies. Much of the trading is speculative, carried out by investors who are looking to generate a profit by taking advantage of changes in the relative value of different currencies.
There are several benefits of trading currencies. For example, many currency pairs (especially Major FX pairs, such as the USD/JPY) offer very high levels of liquidity. This means that there is a constant stream of supply and demand for the asset, giving traders the opportunity to easily enter or exit a position. The FOREX market operates 24 hours per day, for 5 days a week (on weekdays.) This reduces the risk of market gaping, as the market isn’t closed overnight.
Accessing the FOREX Market
If you are going on holiday to another country, you may need to convert your domestic currency into a foreign currency. By doing this, you are accessing the Foreign Exchange market. There are a few others way to exchange currencies (these ways are suitable for speculative trading.)
Many online brokers allow you to trade a range of different currencies, including cryptocurrencies, such as Bitcoin. These brokers usually charge a fee per trade (e.g. $3 per trade.) This makes it hard to generate
a profit if you are placing many short term trades, or scalping.
CFDs (contract-for-difference) and Spread betting are other alternatives. With both CFDs and Spread betting, you gain/lose money based on a point basis (e.g. if you take a £10 per point long position, and the value of the asset falls by 10 points, you will have made a £100 loss, plus the spread.) Spread betting is only available in some countries, and profits are free from stamp duty and income tax.
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