Forex trading has many elements but there are three elements that are highly distinctive and especially important to the foreign exchange. Every new trader should know about these elements before they make their first trade. The first thing to know is that the Forex system is large enough to encompass the globe. It is because of its size that the Forex market is considered to be complex and difficult to both trade in and interpret.
Knowing how the system works is the first step to becoming a successful trader. The three distinctive elements that every trader should be familiar with before they even open up an account are geographical, participant and functional. Each one of these elements has its own role to play in Forex trading.
Geographical and Functional
The geographical element refers basically to the fact that the Forex market includes all of the countries in the world that are able to access and compete in the international financial market. The locations of the various major markets include Hong Kong, Tokyo, London, New York, Sydney, Singapore, Bahrain, and San Francisco. This allows traders to engage in Forex trading around the clock 24 hours a day during the trading week.
The functional aspect of Forex trading and the Forex market involves the purpose of the Forex. The purpose or function of the foreign exchange is to transfer a specific element between countries. The element is known as purchasing power.
When a trade occurs, the revenue from the currency is converted into domestic currency. It is very much like an unbalanced seesaw. When one currency or country’s purchasing power is strong, another’s might be equally weak. The other function of the Foreign exchange is to work as an international trade credit provider. It helps to avoid disasters to the exchange rate and to the financial trade of countries.
The Final Element – Participant
Under this element, there are two main parts. The first is interbank. This is also known as the wholesale market. The second part is the client, which may also be referred to as the retail market. These two parts are then split up into five different types of participants. These are banks and non-bank foreign exchange dealers, individuals and commercial and investment firms, speculators and arbitragers, and finally brokers. They are all participants in Forex trading.
Each one of these participants has a different reason for accessing and trading on the market. Each of these contributes something unique and together they form the third element that all Forex traders need to know before they start Forex trading. This is the type of thing you need to know before becoming a trader.
Understanding these elements can help you to form a firm foundation to grow a successful trading business. Knowing the function of the foreign exchange, understanding the breath of the market and understanding the players is something that everyone involved in Forex trading should have a solid grasp of before they decide if they want to become traders.