The foreign exchange currency market is the largest financial
market in the world. It has an average volume of about $2 trillion a
day, dwarfing the $25 billion a day in volume traded on the New York
Stock Exchange .
Also referred to as "Forex" trading, foreign
exchange currency trades involve the simultaneous buying of one currency
and the selling of another. Currencies are traded in pairs. For
example, you may trade the Great British Pound and the US dollar
(GBP/USD) pair or the British pound and the Japanese Yen (GBP/JPY) pair.
In
effect, you are buying the currency of a particular country. This
equates to taking a position in that nation's economic growth. The
price of the currency is a direct reflection of what the market thinks
about the current and future health of that nation's economy. If you
buy the Japanese Yen, you are in effect buying a share in the Japanese
economy with the belief that their economy will expand in comparison to
the economy of other counties.
The Forex has no physical exchange
or central market. Instead, it is an Over-the-Counter (OTC) or
'Interbank' market. The entire market is run electronically, within a
network of banks.
The market is available continuously open. This
24-hour market is achieved by a transitioning of trading activity
around the globe. Trading begins in Sydney, Australia, then shifts to
Tokyo, Japan. Next, London, England takes over and then "passes the
baton" to New York. As New York shuts down, Sydney is opening for
business.
The Forex market was not intended for retail traders.
The original intent was to provide a currency exchange between banks and
large institutions. In fact, prior to the late 1990's, only these "big
boys" could participate in the foreign exchange currency market. An
initial capital requirement of $10 to $50 million was required, and
there were other obstacles preventing the average person from trading
currencies.
With growing reach of the Internet, online Forex
trading firms began to offer trading accounts to 'retail' traders. With
reduced capital requirements and online access, all that is needed to
get started is a computer, a high-speed Internet connection, and an
understanding of the Forex market and how to trade it profitably.
The
Forex market comes with a series of additional benefit, which make it
irresistible to traders. There are only seven major currency pairs.
Compare that to tracking thousands of stocks. There are no commissions
or exchange fees. Your broker simply makes their money from the
difference on the bid / ask spread. This is also the most liquid market
anywhere.
There are other benefits, but you probably have an idea
as to why currency trading is quickly growing in popularity with retail
traders. The obstacles to accessing these benefits have been largely
eliminated, with knowledge the only barrier between you and forex
trading profitability.
Fortunately, the need for education is
being addressed. If you wish to learn more about the basics of how the
foreign exchange market works, you will find numerous resources on the
Internet and can access reliable information from reputable Forex
brokers. Once you understand the basics and choose to take the next
step, you will want to invest in a solid trading course from a reputable
source.
With good instruction, there is very little that stands
between you and the ability to benefit from trading the foreign exchange
currency market.
You may download a complimentary copy of our extensive, special
report on the Forex market and learn more about the risks and benefits
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