Forex trading is nothing more than direct access trading of
different types of foreign currencies. In the past, foreign
exchange trading was mostly limited to large banks and
institutional traders. However recent technological advancements
have made it so that small traders can also take advantage of
the many benefits of forex trading just by using the various
online trading platforms to trade.
The currencies of the world are on a floating exchange rate, and
they are always traded in pairs. About 85 percent of all daily
transactions involve trading of the major currencies. Four major
currency pairs are usually used for investment purposes. They
are: Euro against US dollar (EUR/USD), US dollar against
Japanese yen (USD/JPY), British pound against US dollar
(GBP/USD) and US dollar against Swiss franc (USD/CHF).
If you think one currency will appreciate against another, you
may exchange that second currency for the first one and be able
to "stay" in it. If everything goes as you plan it, eventually
you may be able to make the opposite deal in that you may
exchange this first currency back for that other and then
collect profits from it. As a note bear in mind that no
dividends are paid on currencies.
Transactions on the FOREX market are performed by dealers at
major banks or FOREX brokerage companies. FOREX is a necessary
part of the worldwide market, so when you are sleeping in the
comfort of your bed, the dealers in Europe are trading
currencies with their Japanese counterparts. Therefore, the
FOREX market is active 24 hours a day and dealers at major
institutions are working 24/7 in three different shifts. Clients
may place take-profit and stop-loss orders with brokers for
overnight execution. Price movements on the FOREX market are
very smooth and without the gaps that you face almost every
morning on the stock market. The daily turnover on the FOREX
market is somewhere around $1.2 trillion, so a new investor
enter and exit positions without any problems.
The fact is that the FOREX market never stops; even on September
11, 2001 you could still get your hands on two-side quotes on
currencies. The currency market is the largest and oldest
financial market in the world. It is also called the foreign
exchange market or FX market for short. It is the biggest and
most liquid market in the world, and it is traded mostly through
the 24 hour-a-day inter-bank currency market.
When you compare them, you will see that the currency futures
market is only one per cent as big. Unlike the futures and stock
markets, trading currencies is not centered on an exchange.
Trading moves from major banking centers of the U.S. to
Australia and New Zealand, to the Far East, to Europe and
finally back to the U.S. it is truly a full circle trading game.
In the past, the forex inter-bank market was not available to
small speculators because of the large minimum transaction sizes
and strict financial requirements. Banks, major currency dealers
and sometimes even very large speculator were the principal
dealers. Only they were able to take advantage of the currency
market's fantastic liquidity and strong trending nature of many
of the world's primary currency exchange rates.
Today, foreign exchange market brokers are able to break down
the larger sized inter-bank units, and offer small traders like
you and me the opportunity to buy or sell any number of these
smaller units. These brokers give any size trader, including
individual speculators or smaller companies, the option to trade
at the same rates and price movements as the big players who
once dominated the market.
About the author:
David Morrison gives you a handy, easy to understand intro to
the wonderful, profitable world of forex trading. This article
is free to publish - more information can be found at www.ForexTrader123.com
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Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest / trade in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading.
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