forex

Forex, investing in the foreign exchange market

Forex the market that has the biggest financial movement, are 4 trillion dollars a day.
Joining all the market together does not give the size of the exchange market.
A market of several opportunities for you that wanted to have an investment in the speculative market.

What is forex?

Forex is an abbreviation of the word Foregin Exchange, it means foreign exchange, or better foreign exchange.

Usually the transactions are made through currency pairs, example Dollar/Yen, Euro/Dollar etc …
Soon when you buy this one acquiring a currency, and when it is selling this one buying another currency.
Example, if you have an increase in the dollar, certainly generally the people selling their currencies to exchange in dollars.

How does the market work?

Formerly only agents of change and the big banks had access to the market.
But with the passage of time brokers, and autonomous traders have gained strength in the market of change.
But in general we can classify thus:

  • Investor: responsible for the margin deposit that will guarantee the operations, as well as the person responsible for the strategies and losses.
  • Brokerage: responsible for offering the platforms for negotiations as well as leverage and spread paid in operations.
  • Bank: Usually the brokerage works with a bank to settle the operations, see in this pages some banks that are brokerages.

Usually the big players on the market are banks.
They buy currencies at a certain time when they believe they are well undervalued and sell over time to make a profit.
Central banks are also in the game, but they act from the high control of the prices of a given currency.

How does currency pairs work?

Well now that you know how the market works and which agents are involved, I’ll show you how the parities work.
The parities follow an international standard where the first two letters refers to the country, and the last letter the currency, in case you want to delve into a read on this page.
An example with the Euro would be: EUR, and the dollar, USD.
Just as I said earlier the market is traded for currency pairs so we need two currencies to have the parity.
Following the above rules we can make some parities:

EUR/USD = Euro against the US Dollar.
USD/JPY = Dollar against the Japanese yen.
BRL/USD = Brazilian Real against the US Dollar.

As we have trades in several currency pairs, there are little currencies traded in the forex market.
However there are some parities that move more than 50% of the market.
The parities with the largest number of businesses are:

EUR/USD
USD/JPY
GBP/USD
USD/CHF

The first currency is called the base currency, the second is the currency quote.
So the pair for example completing the USD, in the case for example EUR / USD, means the value of the Euro in dollar.
In case you open an operation on that parity of the standard lot 100.000 EUR each point is equivalent to 1 dollar because the quotation is in dollars.

Correlated pairs.

The correlated pair is the pair that does not have USD in its parity.
The correlated pairs have a rather high spread in your brokerage.
This is because the costs of these operations are greater.
For example, opening a transaction in EUR / JPY is the same as opening a transaction in EUR / USD and simultaneously in USD / JPY.
That is why the spread of these operations are somewhat higher than normal.

What moves the peers?

The movement of currencies occurs through various events in the country in which the currency is related.
Let us see in the case the currency of Brazil BRL, had a great devaluation from 2014, even more with the development of Lava Jato this caused a negative effect.
So always have to keep an eye on the credibility of the country, the main economic indicators, employment, interest rate, GDP, central bank measures etc …
All this data is important to choose your peers to carry out their operations.
Let’s look at a rather recent case that happened in Brexit Europe.

It was a plebiscite for the departure of the United Kingdom from the European Union, on that day the market was very volatile by the uncertainties surrounding this news.
See the chart below GBPUSD, when moving on that day.

forex gbpusd

There were more than 15,000 pipettes in a single day, so you have to always keep an eye out for news related to the country of the coin.

Today when I write this post the dollar is even devaluing much by the events in North Korea.
In the event of a war, the likelihood of high volatility in the births with JPY and USD is very high.

For the investor in this market to follow the news is of extreme importance.
But you must be wondering where I can keep up with the big news?
I suggest you follow the economic calendar on investing.com website and you will see the main news related to the currencies chosen.

calendário econômico

Remembering that it is always good to keep up with news coming out around the world as well.

How Forex Trading Works?

There are practically the 3 main ways to trade Forex:

  • Spot: Most used for investors and standalone traders, are traded with the actual price, the price of that moment.
  • Options: These are the options to buy or sell a particular currency pair, which is widely used by companies that choose to trade for options.
  • Futures: Also used by traders and companies because you buy future values with a specific term.

Margin

The transactions made in the foreign exchange market are required to have a margin account at your brokerage.
Margin account is a value in USD, EUR, CHF etc … that you have in your brokerage.
It is a guarantee deposit necessary to open your orders in the exchange market.

In the market first you do the operation and after closing the operation the result (negative or positive) will be credited to your account.

Leverage

Leverage allows investors to amplify their results.
Serious brokerages typically use a leverage ratio of 50: 1 to 100: 1.
That means the $ 1 you deposit into the account you can move up to $ 50 or $ 100.
For example, a $ 1000 account can move you in a leverage of 50: 1 up to $ 50,000, allowing you to leverage your results.

Conclusion

Forex is a market that has attracted more and more investors.
In Brazil it has gained a lot of strength in recent years, but beware of buying courses fakes around, evaluate the teacher well and try to talk to someone who has taken the course of this teacher before.
Doubtless a teacher who follows your results that helps you put together your strategy will be a differential in the beginning.
To make a profit in this market you have to build a strategy, have patience, discipline and confidence in your analysis.
Only when you leave the fear and discipline your investments will you survive the market.

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