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.
About The Author: This article provided courtesy of
http://www.about-forex.net
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.
About The Author: This article provided courtesy of
http://www.about-forex.net
