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Forex Trade

What is Forex ? – Forex is an international market

The word Forex is an acronym for the term Foreign Exchange. It means exchange of one currency for another on a financial market. Forex has been in existence since the 70’s of the XX century. It is a fast-growing and one of the most heavily traded markets in the world. The daily trading turnover on Forex is worth almost 4 trillion US dollars. Like any other market, Forex trades certain goods, namely national currencies of different countries.

The key principle of currency dynamics is the need of government agencies as well as commercial companies around the world to convert profits generated abroad into their national currencies. However, their share accounts for just 5% of the Forex turnover. The remaining 95% comes from speculative capital of currency traders who are focused on gaining profits from currencies fluctuations.

Thanks to the Internet, traders can make deals with customers from other countries. So, non-stop dynamics of exchange rates, traders’ intellectual abilities, and state-of-the-art software make it possible to set up a lucrative business in no time. Nowadays, services of ECN brokers are gaining in popularity as they enable clients to trade with each other by offering their best bid and ask prices.

Shares and forex are one of the most popular and well-known financial instruments. When you buy a share, you’re buying a small part – or ‘unit of ownership’ – in a company.

An added benefit of trading shares is receiving dividends. They represent your share of the company’s profits and are usually paid out twice a year. The amount you receive depends on how much the management distributes to shareholders, and how much it reinvests back into the business.

A stock index is a hugely important part of our financial world, but it is nothing more than a number representing the top shares from a particular exchange.

For example, the FTSE 100 represents the largest 100 companies traded on the London Stock Exchange. If, on average, the share price of these companies goes up – then the FTSE 100 will rise with them. And if they fall, it will drop.

Other examples of stock indices include:

Dow Jones, Nasdaq and S&P (US)

DAX and CAC (Europe)

Hang Seng, Nikkei and ASX (Asia-Pacific)

Most of these are calculated using a capitalisation-weighted average, which means the size of each company is taken into account. The more a particular company is worth, the more its share price will affect the index as a whole.

However, the Dow Jones and Nikkei are price-weighted indices, where shares with higher prices have more influence. This means a stock trading at $100 is given 10 times more weight than one at $10.