For many, understanding the Forex market can be a daunting task. Forex trading is unique in comparison to securities trading and futures trading. In securities trading, you have an exchange or whether it be an electronic or an actual floor exchange. This is a centralized location where all trades meet and match up. The NYSE and the NASDAQ are two of the more familiar names when it comes to securities exchanges.
In futures trading, it is also a similar situation where futures contracts are met at a centralized exchange whether it is electronic or a floor exchange. The most notable of the futures exchanges is the CBOT. This is where both financial futures and commodity futures trade.
In Forex Trading there is no centralized floor or exchange, the exchange is the interbank market. The interbank market is a collection of banks and financial institutions that provide pricing on the various currency pairs. The pricing that is provided and broadcast from these banks is also known as liquidity. In its simplest terms, liquidity refers to how much is available to trade at a specific price. This is a constant fluctuating number as the interbank market participants are constantly adjusting the amount of liquidity available at those various prices on different currency pairs. Forex liquidity providers play an essential role in keeping the Forex market moving.
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Trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice.
