The Foreign Exchange Market - better known as FOREX - is a
world wide market for buying and selling currencies. It handles a
huge volume of transactions 24 hours a day, 5 days a week. Daily
exchanges are worth approximately $1.5 trillion (US dollars). In
comparison, the United States Treasury Bond market averages $300
billion a day and American stock markets exchange about $100
billion a day.
The Foreign Exchange Market was established in 1971 with the
abolishment of fixed currency exchanges. Currencies became valued
at 'floating' rates determined by supply and demand. The FOREX
grew steadily throughout the 1970's, but with the technological
advances of the 80's FOREX grew from trading levels of $70
billion a day to the current level of $1.5 trillion.
The FOREX is made up of about 5000 trading institutions such
as international banks, central government banks (such as the US
Federal Reserve), and commercial companies and brokers for all
types of foreign currency exchange. There is no centralized
location of FOREX - major trading centers are located in New
York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt,
and all trading is by telephone or over the Internet. Businesses
use the market to buy and sell products in other countries, but
most of the activity on the FOREX is from currency traders who
use it to generate profits from small movements in the
market.
Even though there are many huge players in FOREX, it is
accessible to the small investor thanks to recent changes in the
regulations. Previously, there was a minimum transaction size and
traders were required to meet strict financial requirements. With
the advent of Internet trading, regulations have been changed to
allow large interbank units to be broken down into smaller lots.
Each lot is worth about $100,000 and is accessible to the
individual investor through 'leverage' - loans extended for
trading. Typically, lots can be controlled with a leverage of
100:1 meaning that US$1,000 will allow you to control a $100,000
currency exchange.
There are many advantages to trading in FOREX.
· Liquidity - Because of the size of the Foreign Exchange
Market, investments are extremely liquid. International banks are
continuously providing bid and ask offers and the high number of
transactions each day means there is always a buyer or a seller
for any currency.
· Accessibility - The market is open 24 hours a day, 5
days a week. The market opens Monday morning Australian time and
closes Friday afternoon New York time. Trades can be done on the
Internet from your home or office.
· Open Market - Currency fluctuations are usually caused
by changes in national economies. News about these changes is
accessible to everyone at the same time - there can be no
'insider trading' in FOREX.
· No commission - Brokers earn money by setting a
'spread' - the difference between what a currency can be bought
at and what it can be sold at.
How does it work?
Currencies are always traded in pairs - the US dollar against
the Japanese yen, or the English pound against the euro. Every
transaction involves selling one currency and buying another, so
if an investor believes the euro will gain against the dollar, he
will sell dollars and buy euros.
The potential for profit exists because there is always
movement between currencies. Even small changes can result in
substantial profits because of the large amount of money involved
in each transaction. At the same time, it can be a relatively
safe market for the individual investor. There are safeguards
built in to protect both the broker and the investor and a number
of software tools exist to minimize loss.
Copyright 2005. William McNutt. All rights reserved
This article may be freely distributed and reprinted as long
as the author's information and web link are included at the
bottom of the article.
Bill McNutt is a retired Areospace Engineer. Retirement got
boring so he took up web page building. He spends most of his
time working on websites and writing articles.
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RELATED ARTICLESFactors Influencing a
Currency Pair Exchange Rate
IntroductionThe exchange rate refers to the value of the US
dollar against the values of currencies of other countries.
Such a rate helps determine how much we pay for imported
goods and services and how much we receive for what we
export, among other things.
Forex Made Easy for
Everyone
Forex made easy is as simple as you would want it to be.
The foreign exchange market is a worldwide market and
according to some estimates is almost as big as thirty
times the turnover of the US Equity markets.
E-currency Exchange
Trading
If you are reading this article you are probably one of the
many people who have spent countless hours searching for
unique ways to make money on the internet. Very few people
have gone on to succeed and most have failed miserably time
and time again.
Facts of Day
Trading
Are you thinking of entering the fast-paced world of day
trading? Arm yourselves with the information from this fact
sheet on day trading.What is day trading?Day trading is an
investment tactic that does online daily stock trading with
a relatively short investment.
Online Stock Trading:
Freedom of Trade
I remember the first time I started to trade online. It was
just before the tech bubble of the late 1990's and the
internet was still something new for most people.
Trade Exit - How To Cut
Losses And Let Profits Run
Cut your losses short and let your profits run. This is the
essence of your trade exit rules.
The Secrets of the
Super-Traders
The first and perhaps most important "secret" is to realize
that your methodology or approach (no matter how good) is
only part of being a highly successful trader. This applies
to any trading style including, day trading, swing trading
or position trading.
Ways to Acquire
Discipline in Trading
One way to acquire discipline in trading..
Financial Crises, Global
Capital Flows and the International Financial
Architecture
The recent upheavals in the world financial markets were
quelled by the immediate intervention of both international
financial institutions such as the IMF and of domestic ones
in the developed countries, such as the Federal Reserve in
the USA. The danger seems to have passed, though recent
tremors in South Korea, Brazil and Taiwan do not augur
well.
Forex Broker
A broker is any person or firm that charges a fee in
exchange for executing trades for a trader. A Forex broker
does not charge a commission for placing a buy or a sell
order the way a real estate broker would charge a
percentage fee of the total price of a sale.
Day Trading the Index
Futures - How to Judge Good Entries
QUESTION: If the SP futures fall through support and go
straight down for another two points, and I want to get
short, should I a.) enter immediately, b.
Commodity Trading -
Advantages and Disadvantages
What Is Commodity Trading? Commodity futures markets allow
commercial producers and commercial consumers to offset the
risk of adverse future price movements in the commodities
that they are selling or buying. In order to work a futures
contract must be standardized.
Why Forex Traders Plan To
Fail Before They Even Place Their First Trade & How You
Can Know It & ...
Have you heard the wise saying that a trader who fails to
plan, plans to fail? I have, and I was once that trader!
However, did you know that even though traders who have
constructed a plan, which incorporates their trading
strategy (their "edge"), they have a plan that is likely to
fail? If we look at all traders who participate in the
market: we have one group that fails to plan and therefore
plans to fail; another group whose plan is failed; and a
third group who properly plans and therefore does not
fail. Is it any wonder that the success rate for forex
traders is so slim? Well it doesn't have to be.
Why Hedge Foreign
Currency Risk?
International commerce has rapidly increased as the
internet has provided a new and more transparent
marketplace for individuals and entities alike to conduct
international business and trading activities. Significant
changes in the international economic and political
landscape have led to uncertainty regarding the direction
of foreign exchange rates.
What I Learnt Losing
£60,000 My First Year as a Full-time
Trader
During my first year as a local (independent trader) on the
floor of LIFFE, I bought and sold 8804 FTSE futures
contracts, about 40 contracts per day on average. The
result was a loss of £61,620 or -£267 per trading
day.
Be a Smarter FOREX
Currency Trader: Three Basic Principles
Below I will describe three basic principles that may come
in handy for currency traders. They are very easy to
implement and potentially take advantage of as you will
see.
FOREX - Where Fortunes
Are Made Everyday
The Foreign Exchange Market - better known as FOREX - is a
world wide market for buying and selling currencies. It
handles a huge volume of transactions 24 hours a day, 5
days a week.
Forex Market
Overview
"FX" is an abbreviation of "forex" or "foreign exchange."
Foreign exchange is the largest and most liquid market in
the world trading approximately $2 trillion every day
(that's over 30 times the daily volume of NASDAQ and NYSE
combined).
Why Demo Account
Performance Is Often Better Than Real Account
Performance
Over the past several years, the popularity of online
currency trading has grown substantially. Each day, online
FX brokerage firms attract new investors - each of them
lining up with a glint in their eye, lured in by promises
of easy money.
Experience
Throughout our course on futures trading, we have tried to
point out to you that there is a great difference between
having an investor attitude and being a trader. There are
also many similarities.
MORE RESOURCES updated Thu. February / 09 / 2012
