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Forex, or Foreign Exchange Trading, is a booming, multi-billion dollar market, involving players at every level from gigantic, multi-national banks to lone-wolf traders. Individuals involved in the currency trade usually rely on complex Forex Trading software, which helps them connect to currency markets and execute trades efficiently. Rather than running this software on their local machines, they usually use Forex Hosting, specialized web hosting plans that provide the unique features they need.
What Is Forex?
Forex is the common term for the Foreign Exchange Market, the global trade in currency. The scale of the global trade in currencies is a little hard to measure, but it easily exceeds $5 trillion per day, dwarfing trade volumes in other asset classes like equities (stocks) or futures.
The Forex market is decentralized — there is no single official clearing-house for currency trades. Rather, major global market centers such as London, New York, Tokyo, Zurich, Hong Kong, and Singapore acts as anchors for Foreign Exchange trade activity.
Who Trades on the Forex Market — and Why?
A lot of people and institutions are involved in the Forex trade, all with different motivations.
The foundation of the Forex trade is the interbank market, very large (multi-million and multi-billion dollar) trades between a handful of very large financial institutions (mostly banks and some insurance companies). Some of this activity is directly profit-seeking, that is — trying to make money on the "spread" of values between currencies, or the expected change in currency valuation. Much of it is in support of the activity of lower levels of currency trading. These transactions are not conducted publicly, so the details of their volume and the exact spread is not known outside the small circle of players. The interbank market accounts for about 35-40% of the Forex market.
- Smaller banks, large multi-national corporations, hedge funds, and other institutional traders are involved for reasons of:
- risk hedging — spreading out the risk that any one currency will lose value
- business needs — a company that primarily earns money in one country and spends money in another will need to exchange earned currency for spendable currency
- profit-seeking — again, some traders are simply looking to make money through speculation or arbitrage
National central banks participate in the Forex market primarily as political actors, attempting to stabilize currency value, effect a particular target interest or exchange rate, or to pursue other monetary policy goals.
Brokers and market makers engage in Forex trading primarily to support the Forex activity (retail and speculative) of smaller-scale traders.
Retail currency traders assist international travelers who need to have spendable currency in more than one country.
Individual speculators (day traders) attempt to make money as exchange rates change, as well (less often) through arbitrage (exploiting the difference between exchange rates in two different markets). Arbitrage is seldom a profitable enterprise for small-scale traders because of the relative efficiency of the currency exchange market and the costs associated with trading.
Individual Forex Trading
Individual Forex speculators are a large and growing segment of the Forex market. These are people — usually non-professionals — trading on the foreign exchange market for personal benefit. This is a type of day-trading, and many of the people involved with it are also involved in other forms of personal day-trading. Like other forms of day trading, it is a highly risky activity, but can also be very profitable for some participants.
Virtually all of this trading activity is done online, using specialized software.
Most of the software used by individual Forex day traders can be put in one of two categories:
Analysis software — This is software that fetches market data (exchange rates, public transactions, other sources of financial news) and processes it for consumption. Analysis software can generate charts, help users visualize large data sets, and even making buy/sell recommendations.
- Trading software — This is software that actually connects the user to a specific financial market (sometimes to several), and facilitates actual transactions. A particularly interesting subset of trading software is:
- Automated trading — This is specialized software that actually conducts trades automatically on behalf of the user-investor, according to various algorithms or rules setup by the user.
Many software packages include elements of both types, and the more advanced automated trading systems allow end-users to create their own trading algorithms, or integrate with other software systems.
As an individual Forex trader, it is possible to run Forex trading software from your local computer, but many people choose to run these systems from cloud-based VPS servers. This allows traders to use more-powerful and flexible computing systems which run constantly and have access to higher-speed internet trunk lines.
What to Look for in Forex Hosting
There are a number of hosting companies that offer specialized Forex hosting, and you can also use non-specialized VPS or Dedicated hosting plans, assuming they provide the kind of features you need.
Hosting features that Forex traders benefit from include:
Proximity to financial markets — Geographical proximity speeds up information latency, making the difference between microseconds and minutes for trade decision and execution. This is hugely important for automated trading of any kind.
High-speed processing — Also important for automated trading, and for any kind of complex analysis software.
High-speed internet connection — The final piece of the speed puzzle. Most hosting plans are run out of data-centers with very high-speed internet connections — so, while this is important, it is not hard to find.
Additional security layers — Most Forex hosting plans provide some additional layers of security and isolation, over and above those provided by typical VPS hosting plans.
Pre-installed software — Most hosting packages that advertise as specifically targeting Forex clients provide pre-installed software packages for analysis and trading.