If you were wondering; 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 Euro/Dollar, Dollar/Yen, etc. 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, US dollar against Japanese yen,
British pound against US dollar, and US dollar against Swiss franc.
Right now I will show you how they look in the trading market: EUR/USD,
USD/JPY, GBP/USD, and USD/CHF. As a note you should know that no
dividends are paid on currencies.
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. In case 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.
Transactions on the FOREX market are performed by dealers at major
banks or FOREX brokerage companies. FOREX is a necessary part of the
world wide market, so when you are sleeping in the comfort of your bed,
the dealers in Europe are trading currencies with their Japanese
counterparts.
Therefore, it is reasonable for you to believe that 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 can 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, 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.
