The foreign exchange or the forex market is accepted as the most active and liquid financial markets in the world. Global daily forex turnover is estimated to be over $1.7 trillion.
The spot forex market is an over-the-counter market and is different from exchange-traded products because it has no physical location or central exchange. Foreign exchange trading takes place in the world major financial trading centers with the main centers being London, New York and Tokyo.
Trading hours are rarely restricted and prices are typically available in the major currency pairs almost without interruption during the working week. This liquidity and frequent volatility makes the trading of currencies an attractive investment opportunity for the experienced market participant.
Forex trading has many investment benefits some of which are:
Forex market is much more cost efficient to invest in terms of both commissions and transaction fees. In general, the width of the spread in a FX transaction is less than 1/10 as wide as a stock transaction.
A client believes that the EUR is due to rise in the future against US dollar, to get benefit of the situation the client intends to buy EURUSD. EURUSD is quoted at 1.3740 - 1.3743, the client buys 2 lots at 1.3743, the client requires minimum deposit of 1000 $ for each lot.
EURUSD prices rise to 1.3810 - 1.3813, the client is satisfied with his profit and wants to close his positions, he therefore sells 2 lots of EURUSD at 1.3810, so the client has made profit of 67 points (1.3810 - 1.3743 = 0.0067) . To calculate the profit we will do the following:
*Commission charges are NOT included in the above calculations
A client believes that the JPY will weaken in the future against US dollar, to get benefit of the situation the client intends to buy USDJPY. (Buying USD & selling JPY)
USDJPY is quoted at 112.50- 112.53, the client buys 4 lots at 112.53, the client requires minimum deposit of 1000 $ for each lot.
USDJPY prices rise to 112.95- 112.98, the client is satisfied with his profit and wants to close his positions, he therefore sells 4 lots of USDJPY at 112.95, so the client has made profit of 42 points (112.95 - 112.53 = 0.42)
. To calculate the profit we will do the following:
*Commission charges are NOT included in the above calculations