The Basics Of FX Trading

The Foreign Exchange Market, better known as the Forex Market, is a world-wide market for Currency Trading, where currencies are bought and sold.  The Forex Trading or FX market handles a huge volume of transactions 24 hours a day, 7 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 market exchanges about $100 billion a day.

This market was created as a result of the abolishment of fixed currency rates in the early ‘70s. This allowed currencies to become valued at a “floating” rate, totally created by the supply or demand of that instrument. The Forex market 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 Trading market is made up of commercial companies, brokers, international banks, government banks (such as the European Central Bank).

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. The market is used by businesses that transact internationally, but the majority of the trading in the market is from currency traders who use the market to generate profit s built on market movement.

Even though there are many huge players in Forex, it is accessible to the small investor thanks to recent changes in the regulations. The reg change that made the biggest impact was that of minimum transaction size and traders needing to pass strict financial requirements. Largely due to the advent of technology like the internet, the regs have been changed to reflect that technology and therefore interbank units have been broken down into much smaller lots.

Some Trading Advantages to FX.
•    Liquidity - High Liquidity due to the market size.  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 during the business week. The market is open Monday morning Australian time and closes Friday Afternoon New York time, and you can trade from your home of office via internet.
•    Open Market – The fluctuations in currency exchanges are usually caused by national and international economic news. 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.

These products are not suitable for everyone, so please ensure that you fully understand the risks involved. These products are volatile instruments that involve a high risk of losing all of your investment.  Past performance is not always indicative of future results