Securities Laws In Forex Trading In Texas: Guidance From San Antonio Attorneys – Have you ever wondered what Forex is or how it works? Or, if you already know about it, but you are interested in knowing how to invest in this market and generate significant profits, this article is for you.

This will allow you to understand what determines and how prices are generated in the currency market when it is convenient to invest, what are its advantages and disadvantages, and the basic concepts you need to know before entering Forex.

Securities Laws In Forex Trading In Texas: Guidance From San Antonio Attorneys

Securities Laws In Forex Trading In Texas: Guidance From San Antonio Attorneys

Forex trading for beginners can be complicated; learning the basics of how currencies are traded is the first step.

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In a nutshell, the Forex market, or foreign exchange market, is where currency trading takes place. For example, Mexican pesos are exchanged for Japanese yen.

Its name, the acronym for foreign exchange market, resonates around the world as the largest financial market. Since its inception, the traded volume has increased exponentially, reaching 6,595,471 million US dollars per day (averages) in 2019.

Now you are probably wondering what are the “currency pairs” that are traded on Forex and what is the purpose of doing so. If you visit any trading platform, you will see expressions like:

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This pair consists of the Euro (EUR) and the US Dollar (USD). Each currency is represented by a three-letter ISO code, where the first two letters indicate the country or region of origin (EUR/USD in the example).

In this case, the Euro is the “base currency” and the Dollar is the “quote currency”, so 1.21160 represents how many Dollars are needed to buy 1 Euro. Currency traders in this market speculate on the evolution of this “exchange price” to make a profit. They buy or sell the exchange rates.

Majors account for most of the world’s currency trading volume. EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, USD/CHF and NZD/USD make up this group. The first one alone accounts for 30% of the total Forex trading volume.

Securities Laws In Forex Trading In Texas: Guidance From San Antonio Attorneys

Minors are less frequently traded and do not include the US dollar. Alternatively, they are called currency crosses and among the most important ones you can see EUR/GBP, EUR/AUD, GBP/JPY and EUR/CAD.

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These are usually composed of a currency of a developed economy and a currency of a developing country. They are characterized by high volatility, low liquidity and wider spreads (difference between the ask price and the bid price). Examples are USD/BRL, USD/ZAR or USD/RUB.

Other currencies, as in this case, are paired by region, where the US dollar is usually included as the base currency. For example: in Africa you can find USD/SOS or USD/AOA.

Although it may seem abstract to you, currency exchange is more tangible than you think. It is present when you buy a product from another country, when you take a trip to another continent, among other activities of daily life.

Understanding what the exchange rate is and what the differences in interest rates are is fundamental when you start trading Forex.

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The exchange rate is the value of one currency in terms of another, as we saw with the EUR/USD pair. In most cases, the exchange rate can fluctuate freely; therefore it will depend on the behavior of the FX market, in terms of supply and demand of the currencies involved. However, some countries choose to limit the fluctuation of their currency or decide to “peg” its value to another currency.

The exchange rate can be influenced by the timing of the operation and by expectations about its future behavior. Thus, the “spot” exchange rate, which represents the current market value, may differ from the value of the forward exchange rate. It is in these cases that fundamental analysis becomes important, for example through a country’s economic news.

At the same time, Forex traders analyze the interest rate differential in a currency pair. As the name suggests, it refers to the difference in the interest rate of two currencies and is equivalent to the profit you can generate by selling the currency with the lower interest rate to buy the one with the higher interest rate. By identifying this differential, you can do what is called a “carry trade”.

Securities Laws In Forex Trading In Texas: Guidance From San Antonio Attorneys

You are probably wondering who are the favorite players in this market… and the answer is that they are many and of different kinds. The most important are:

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There is a Central Bank in most countries or economic zones. The most important is the Federal Reserve (Fed – US central bank). It is in charge of regulating national monetary policy, which implies defining interest rates or exchange rates that affect open market operations.

They can even affect other areas of the economy. For example, they may deliberately cause their currency to devalue to make their exports more competitive. Actions of central banks affect not only the forex market, but financial markets in general.

Through the interbank market or electronic networks, commercial and investment banks can exchange currencies with each other in order to increase their stocks or meet legal requirements for their operations. In addition, they offer their clients services involving foreign exchange transactions, such as buying/selling foreign currency.

International companies that import and export goods or services constantly carry out foreign exchange transactions in order to function, as they are involved in the entire production chain.

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Finally, investment managers or individual investors also participate in the Forex market. The former manage portfolios, investment funds or hedge funds and conduct foreign exchange transactions through large accounts such as pension funds. Retail investors trade in low volumes, although their popularity is currently on the rise.

Unlike other markets, Forex operates 24 hours a day, 5 days a week, thanks to the time difference between countries. For example, when it is 10 am. in New York, it’s 11 p.m. in Hong Kong.

In some time zones, at least two of the major stock exchanges (located in London, New York, Sydney and Tokyo) are open at the same time. These “time windows” are conducive to trading, as there are a greater number of bidders and askers, and volatility (both price and volume) is higher.

Securities Laws In Forex Trading In Texas: Guidance From San Antonio Attorneys

An example of such a “time window” occurs between 08:00 and 12:00 (Eastern Standard Time), when the New York and London stock exchanges are open. This means you can trade 24 hours a day, five days a week; unlike the stock market or other financial markets which have a limited trading schedule.

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There are many reasons why people may make a forex trade. From the necessity of exchanging one currency for another, to pure speculation; from investing to managing risks.

Although most traders use Forex for speculation and profit, some traders use it to offset their exposure to price movements, i.e. to reduce risk. This involves opening a buy and sell position for the same level of risk, on the same asset or two different assets (preferably correlated). In this way, you will be able to maintain the profitability of the operations and avoid closing positions.

Companies can use forex and futures markets to avoid the risk of price fluctuations (hedging); at the same time, they can use it to speculate to make a profit.

There are mainly three main asset classes: fixed income (bonds), equity markets and money markets. The forex market is equivalent to cash, so it can be placed in money markets. Using forex as an asset class means that investors will have part of their capital in the FX market.

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This is a concept you need to be aware of if you want to take full advantage of interest rate differentials, especially if you can obtain funds at a low cost. This consists of borrowing currencies with low or negative interest rates, such as the Japanese yen, and buying emerging market currencies, such as the Turkish lira, with high yields.

This process mainly takes place between developed countries and emerging economies as the former are more stable and set low or negative interest rates to stimulate demand, while the latter set higher interest rates to limit capital outflows and regulate the economy.

There are different types of trades you can make within Forex, giving rise to different “types of markets”. The most important are:

Securities Laws In Forex Trading In Texas: Guidance From San Antonio Attorneys

Intended for quick transactions with currencies, where sellers and buyers work at the current exchange rate, collect or pay cash respectively (in cash, with checks or bank transfers). Central banks, commercial banks and individual traders participate in this market.

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Unlike the previous market, transactions are carried out through forward contracts between two parties. The participants agree on the date, price and amounts for which they will trade, without making any deposit in return.

Traders turn to this market for hedging or for speculation. The latter case is typical of those who know the markets well or analyze how the price may vary in the long term. The lack of liquidity or the possibility of non-compliance with the contract by the counterparty are risks that you can run if you decide to invest in this market.

This market eliminates some of the risks associated with the previous market. It does this through standardized contracts

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