What Is FOREX or FOREX MARKET? PART I
The Foreign Exchange market (also referred to as the Forex or FX
market) is the largest financial market in the world, with over $1.5
trillion changing hands every day.
That is larger than all US equity and Treasury markets combined!
Unlike other financial markets that operate at a centralized location
(i.e. stock exchange), the worldwide Forex market has no central
location. It is a global electronic network of banks, financial
institutions and individual traders, all involved in the buying and
selling of national currencies. Another major feature of the Forex
market is that it operates 24 hours a day, corresponding to the opening
and closing of financial centers in countries all across the world,
starting each day in Sydney, then Tokyo, London and New York. At any
time, in any location, there are buyers and sellers, making the Forex
market the most liquid market in the world.
Traditionally, access to the Forex market has been made available only
to banks and other large financial institutions. With advances in
technology over the years, however, the Forex market is now available
to everybody, from banks to money managers to individual traders
trading retail accounts. The time to get involved in this exciting,
global market has never been better than now. Open an account and
become an active player in the largest market on the planet.
The Forex Market is very different than trading currencies on the
futures market, and a lot easier, than trading stocks or commodities.
Whether you are aware of it or not, you already play a role in the
Forex market. The simple fact that you have money in your pocket makes
you an investor in currency, particularly in the US Dollar. By holding
US Dollars, you have elected not to hold the currencies of other
nations. Your purchases of stocks, bonds or other investments, along
with money deposited in your bank account, represent investments that
rely heavily on the integrity of the value of their denominated
currency ¨the US Dollar. Due to the changing value of the US Dollar and
the resulting fluctuations in exchange rates, your investments may
change in value, affecting your overall financial status. With this in
mind, it should be no surprise that many investors have taken advantage
of the fluctuation in Exchange Rates, using the volatility of the
Foreign Exchange market as a way to increase their capital.
Example: suppose you had $1000 and bought Euros when the exchange rate
was 1.50 Euros to the dollar. You would then have 1500 Euros. If the
value of Euros against the US dollar increased then you would sell
(exchange) your Euros for dollars and have more dollars than you
started with.
Example:
You might see the following:
EUR/USD last trade 1.5000 means
One Euro is worth $1.50 US dollars.
The first currency (in this example, the EURO) is referred to as the
base currency and the second (/USD) as the counter or quote currency.
The FOREX plays a vital role in the world economy and there will always
be a tremendous need for the exchange of currencies. International
trade increases as technology and communication increases. As long as
there is international trade, there will be a FOREX market. The FX
market has to exist so a country like Germany can sell products in the
United States and be able to receive Euros in exchange for US Dollar.
RISK WARNING:
Risks of currency trading
Margined currency trading is an extremely risky form of investment and
is only suitable for individuals and institutions capable of handling
the potential losses it entails. An account with an broker allows you
to trade foreign currencies on a highly leveraged basis (up to about
400 times your account equity).The funds in an account that is trading
at maximum leverage may be completely lost if the position(s) held in
the account experiences even a one percent swing in value. Given the
possibility of losing one's entire investment, speculation in the
foreign exchange market should only be conducted with risk capital
funds that, if lost, will not significantly affect the investors
financial well-being.
