An Overview of Forex Market

What is the Forex market?

Foreign exchange market, often called Forex or FX for short, stands as the world’s largest financial market, with daily capital flows surpassing other financial markets such as stocks and bonds. However, despite it being the largest financial market, for some of us, it remains the ‘most familiar stranger’. Therefore, let us explore some fundamental aspects of forex.

Characteristics of Forex

In this market, currencies are bought, sold or exchanged from one currency to another. It is different from other financial markets such as the stock market. For instance, it does not require centralized exchange and transactions occurred over the counter. This means that participants engage in trading with one another through a worldwide network of banks, brokers and various financial institutions.

Forex, being a global market, remains accessible 24 hours a day across different financial centers worldwide and 5 days a week. The major financial institutions are based almost every time zone, including London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney. Depending on the exchange active at a specific time, traders can categorize the markets into three trading sessions: Asian, European and American.

Forex market boasts a high level of transparency, providing real-time price data that is available to all participants through an internet connection. Furthermore, the forex market is accessible to a wide range of participants, including banks, financial institutions, governments, corporations, and individual retail trades.

Exchange Rate

Exchange rate refers to the price of one country’s currency expressed in terms of another country’s currency. In other words, the exchange rate is the comparison between two countries' currencies. It is typically represented by the exchange ratio between two currencies.

USD / CNY = 1/7.28

(Base Currency) (Quote Currency)

Above demonstrates the exchange rate between the US Dollar and Chinese Yuan is 1:7.28. It also indicates how much of quote currency is required to buy or sell one unit of base currency. Hence, 1 US Dollar requires 7.28 Chinese Yuan to purchase.

Factors Influencing Exchange Rates

Exchange rates are influenced by the dynamics of supply and demand. The currency value usually increases when the demand for it is greater than the supply. In contrast, the currency value decreases when the demand for it is less than the supply. Additionally, prices fluctuate in response to economic, social and political events that occur throughout 24-hour trading day.

Moreover, currency prices are significantly influenced by the political situation and economic performance of the countries involved. For example, a country with a lower inflation rate will generally experience an increase of its currency value in relation to the currencies of its trading partners. Additionally, there exists a strong correlation between inflation and the central bank's interest rate: a lower interest rate can lead to a depreciation of the exchange rate, and vice versa.

Besides, economic performance seems to be one of the factors that influence the exchange rate. A strong economic performance, including factors like GDP growth, employment rates, and consumer sentiment, can increase confidence in a country's currency and lead to its appreciation. Another significant factor affecting price setting is the orders placed by participants in the Forex market, that are quite diverse in volume they generate and influence they have.

Governments and central banks, such as the European Central Bank, the Bank of England, and the Federal Reserve of the United States, operate with the largest trading volumes and have the greatest impact on exchange rates. Central banks are tasked with managing inflation, money supply, and interest rates, as well as supervising commercial banking systems. They have the capacity to utilize foreign exchange reserves for market interventions at stabilizing currency rates or achieving specific economic goals.

The second largest group comprises major banks and bank associations, which is called the interbank market. Within this market, they engage in transactions with each other and determine the currency prices that individual trades observe on their trading platforms. Due to the decentralized nature of the Forex market, you can always find slightly different exchange rates for the same currency offered by different banks.

Brokerage firms are also considered as participants in the forex market. They serve as intermediaries between individual traders and the market. They utilize electronic communication networks (ECNs) to match clients' orders with liquidity providers, which may comprise various financial institutions. This execution model removes potential conflicts of interest between the brokerage and its clients during order execution. Unlike market makers, ECN brokerages earn compensation through commissions, which may be charged per order or included in the spread as a markup.

What are Forex Brokers?

As mentioned, a forex broker is a financial institution or individual that serves as a vital intermediary to offer a trading platform for individuals to engage in buying and selling currencies within the Forex market. Forex brokers generate their income by charging a commission or a fee on each of their clients’ transactions. They play an important role in the Forex market because they offer clients access to the market and help traders execute their trades.

Also, Forex brokers provide a wide range of services to their clients, including market analysis and research, educational materials, trading signals, risk management and access to various financial instruments. These services assist traders to make well-informed decisions when trading in the Forex market. These resources also help traders in various trading scenarios, creating an accessible trading environment. However, it is crucial to choose a reputable and well-regulated broker to ensure safe and reliable trading experience.

Factors To Consider When Choosing A Forex Broker

When selecting a Forex broker, especially for beginners, it's imperative to consider factors:

1. Regulation and Licensing

It is highly important to ensure the broker is regulated by reputable financial authorities such as the UK’s Financial Conduct Authority (FCA), US’s National Futures Association (NFA), Australia Securities & Investment Commission (ASIC), Securities and Futures Commission (SFC), CIMA-Cayman Island Monetary Authority and so forth. Regulatory bodies provide oversight and ensure brokers adhere to financial industry standards. Lion Brokers Limited (Lion Brokers) is licensed and regulated by Cayman Islands Monetary Authority (CIMA) and Monetary Authority of Singapore (MAS) to conduct the regulated activities dealing in capital markets products.

2. Trading Platforms

Trading platform for ease of use, reliability and features like technical tools, customizable charts and the availability of mobile or web-based platforms is also factor to be considered. Lion Brokers provide you with MetaTrader 4 and MetaTrader 5 platforms. Lion Brokers Limited MetaTrader platform provide a user-friendly interface, enabling users to understand the platform’s features. It consists functions of customizable charts, technical analysis, alerts and notifications, advanced risk management, and so forth. Both MetaTrader 4 and 5 are available in mobile, web-based platform as well as desktop.

3. Minimum Deposit

Absolutely, one of the key factors to consider when selecting a Forex broker is the "minimum deposit". It has significant implications for traders, especially those with specific budget constraints or risk management preferences. You can begin your investment journey at Lion Brokers with a minimum deposit of just $30. And, we are excited to share fantastic news – you can enjoy a 100% deposit bonus which is a golden opportunity to maximize your potential returns!

4. Withdrawal Process

Assess the ease and speed of withdrawing funds. It is necessary for traders to ensure that the broker offers a convenient and secure method for managing the account’s finances. A smooth and efficient withdrawal process ensures that you can access your profits and funds without unnecessary delays or complications.

Lion Brokers’ clients can easily make withdrawals anytime on the working days by accessing the app.

5. Customer Support

Responsiveness, helpfulness and availability during trading hours is important to traders. Timely support is crucial when facing technical issues or questions. If you encounter any trading-related questions, our Customer Support is ready to provide you with relevant information and guidance on resolving any problem that may arise. Our Customer Support operates 24/5 and typically resolves the issues within a matter of minutes, ensuring a smooth trading experience.

6. Leverage

Given the typically minor daily price fluctuations (often less than 1% of a cent), selecting a broker that provides a significant leverage becomes crucial. A higher leverage ratio reduces the amount of capital required to hold a position.

Lion Brokers offers a flexible leverage system with the highest leverage ratio of 1:1000.