Foreign Exchange is the procedure of converting one country’s currency to another. It is useful for international trading. For example, a person from Canada importing goods from the United Kingdom. The British trader wouldn’t prefer payment in Canadian dollars but instead would ask for the payment in Pounds. Therefore, the need to convert one country’s currency to another at a market rate occurs due to the complex nature of international trading and the differences in the money between different countries. Despite all of that, forex scams still arise, and as a result, many people suffer tremendous losses. They suffer from bankruptcy, other financial issues, and health problems such as heart attacks, panic attacks, depression, etc. Hence, people should remember to educate themselves about forex scams and their warning signals

Forex Markets:

  • Forex markets are the places where currency trading occurs. 
  • In these markets, forex trade takes place all seven days a week.
  • Daily, transactions of more than trillions of dollars take place. 
  • An important point about the forex market is that it is liquid like any other financial market. 
  • The traders in this market could be government agencies, central banks, commercial banks, forex agents, individuals, etc. 

The functions of the forex market:

The foreign exchange market performs the following functions.

  • Hedging function:

Businesses that globally trade can hedge the risk of currency fluctuations by using means such as a letter of credit or forward contract. Here, the goods should be delivered on a date that is already set for the future and at a mutually agreed price. 

  • Transfer function:

Forex market primarily works to exchange one country’s currency for another to make international trading activities more manageable and convenient. As a result, international trading becomes less complex. 

  • Credit function:

Providing a credit facility to foreign countries during the time of payment, through the foreign bills of exchange, until its maturity or execution, is a crucial function of the forex market. 

Characteristics of the forex market:

The following are the characteristics of the forex market:

  • With account tracking and real-time portfolio usage, it is easy to check the fluctuations in the value of distinct currencies in the forex market. Moreover, you don’t require a forex broker to perform this task.
  • The value of the currencies vary every second in the forex market. It means these forex markets are dynamic and the most active worldwide. 
  • The forex market is established as a platform bringing together its dealers and customers. Dealer’s institutions are present globally to help customers fulfill their exchange and trading activities. 
  • International currencies are the most widely traded financial instruments around the globe, thereby making the forex market highly liquid. 
  • Unlike the markets for stocks and bonds, there is no physical existence in the case of the forex market. It means you won’t find any exchange or building anywhere in the world that represents the forex market. 
  • Forex trades are diffused worldwide and are transacted in different time zones. But still, information systems are developed in such a way that all the information related to forex trading is available at the click of a button. 

Forex trading strategies:

  • The technique employed by forex traders to determine whether to purchase or sell a currency pair at any given time is known as a forex trading strategy. 
  • These forex trading strategies employ market analysis to determine the trade’s entry and exit points, position size, and timing, according to https://decodefx.com/.
  • They also use technical indicators that help the forex trader to try and predict future market performance. 

Types of forex trading strategies:

Mentioned below are the different forex trading strategies:

  • News trading strategy:

Global economic events influence the foreign exchange sector. Therefore, traders can foresee short-term market movements or breakouts by understanding the economic news events and their effect on the pairs of currencies. 

  • Day trading strategy:

In the day trading strategy, financial instrument trading occurs and ends on the same day. It means all positions are closed before the forex market closes. In the case of day trading, a trader can carry out single or multiple trades throughout the day.

  • Carry trade strategy:

In the carry trade strategy, the forex trader borrows a particular currency at a lower rate and concurrently invests in a currency that provides a higher yielding rate. This can contribute to a positive carry of the trade. However, the carry strategy directly depends on the changes in the interest rates for these specific currencies. 

  • Forex Scalping strategy:

In the forex scalping trading strategy, frequent short-term trades are made within a short interval to get minimum returns. The time can vary for a period of a few seconds or minutes. It gives a lot of chances for currency trading despite the low risk-to-reward ratio. 

  • Position trading strategy:

The position trading strategy considers only the fundamental factors. The minor changes in the costs of currencies are not regarded. This strategy does not consume much time. It is the longest-term trading and can last for several months or even years. 

Benefits:

People interested in forex trading can enjoy the following benefits. 

  1. Forex traders have a facility where they can trade across the globe. As the forex market is always open throughout the day, they can trade in currencies anytime.
  2. The cost of transactions in the foreign exchange market is low when compared to other financial markets.
  3. Foreign exchange is a good investment opportunity for beginners. There are many demo accounts for traders at the beginner level to practice forex trading. 
  4. There are no restrictions on directional trading in forex markets as compared to the stock market. 
  5. Forex is a free market, controlled by external factors like the economy.
  6. People can start trading in forex with a minimal amount, without worrying about the major transaction costs. 

Preventing issues like forex scams:

People can prevent the occurrence of forex scams if they follow the below-mentioned tips.

  1. Don’t acknowledge any calls or emails from any unknown person regarding any lucrative forex investment opportunity.
  2. If anyone pressurizes you to invest in forex, the best way to respond is to ignore them completely.
  3. Remember that any forex investment opportunity that promises more returns in a short period is not a good investment. There are no such forex investment opportunities that promise more returns. 
  4. Don’t even think of investing money in a risk-free forex investment opportunity. There are no forex investment opportunities that are risk-free.
  5. Disregard any social media posts about fake forex investment opportunities. 

Conclusion:

Forex trading is all over the world. So people who want to trade for the first time in forex can practice forex trading with their demo accounts. But the essential point is that people should be aware of the risks associated with forex trading. In addition, they must also know about forex scams and their warning signs. 

Contributor’s Bio – Adrian Willson of Morgan Financial Recovery has been writing many articles regarding the recovery of scams for the past eight years. He has been teaching people about forex scams and their preventive measures. Adrian believes that everyone must protect themselves. 


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By Ameena Rey-Franc

Recognized as one of the Top Finance Blogs in the PH. Ameena Rey-Franc (founder of TTP) is a former Banker and BS Accountancy graduate turned Blogger, Keynote Speaker, and entrepreneur. Currently an RFP delegate, she is also the Author of a book about Financial Resilience and has held seminars for reputable companies like GrabFoodPH, Pru Life UK, VISA, JPMorgan Chase& Co., Paypal, Fundline, Moneymax, and many more. The Thrifty Pinay's mission is to empower women to LEARN, EARN, and be FINANCIALLY-INDEPENDENT no matter what life stage they are in.