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What Is Forex Trading?
By David Morrison, Thu Dec 8th
Forex trading is nothing more than direct access trading ofdifferent types of foreign currencies. In the past, foreignexchange trading was mostly limited to large banks andinstitutional traders. However recent technological advancementshave made it so that small traders can also take advantage ofthe many benefits of forex trading just by using the variousonline trading platforms to trade. The currencies of the world are on a floating exchange rate, andthey are always traded in pairs. About 85 percent of all dailytransactions involve trading of the major currencies. Four majorcurrency pairs are usually used for investment purposes. Theyare: Euro against US dollar (EUR/USD), US dollar againstJapanese yen (USD/JPY), British pound against US dollar(GBP/USD) and US dollar against Swiss franc (USD/CHF). If you think one will appreciate against another, youmay exchange that second for the first one and be ableto "stay" in it. If everything goes as you plan it, eventuallyyou may be able to make the opposite deal in that you mayexchange this first back for that other and thencollect profits from it. As a note bear in mind that nodividends are paid on currencies.
Transactions on the FOREX market are performed by dealers atmajor banks or FOREX brokerage companies. FOREX is a necessarypart of the worldwide market, so when you are sleeping in thecomfort of your bed, the dealers in Europe are tradingcurrencies with their Japanese counterparts. Therefore, theFOREX market is active 24 hours a day and dealers at majorinstitutions are working 24/7 in three different shifts. Clientsmay place take-profit and stop-loss orders with brokers forovernight execution. Price movements on the FOREX market arevery smooth and without the gaps that you face almost everymorning on the stock market. The daily turnover on
the FOREXmarket is somewhere around $1.2 trillion, so a new investor canenter and exit positions without any problems. The fact is that the FOREX market never stops; even on September11, 2001 you could still get your hands on two-side quotes oncurrencies. The market is the largest and oldestfinancial market in the world. It is also called the foreignexchange market or FX market for short. It is the biggest andmost liquid market in the world, and it is traded mostly throughthe 24 hour-a-day inter-bank market. When you compare them, you will see that the futuresmarket is only one per cent as big. Unlike the futures and stockmarkets, trading currencies is not centered on an exchange.Trading moves from major banking centers of the U.S. toAustralia and New Zealand, to the Far East, to Europe andfinally back to the U.S. it is truly a full circle trading game.In the past, the forex inter-bank market was not available tosmall speculators because of the large minimum transaction sizesand strict financial requirements. Banks, major dealersand sometimes even very large speculator were the principaldealers. Only they were able to take advantage of the currencymarket's fantastic liquidity and strong trending nature of manyof the world's primary exchange rates. Today, foreign exchange market brokers are able to break downthe larger sized inter-bank units, and offer small traders likeyou and me the opportunity to buy or sell any number of thesesmaller units. These brokers give any size trader, includingindividual speculators or smaller companies, the option to tradeat the same rates and price movements as the big players whoonce dominated the market. About the author:David Morrison gives you a handy, easy to understand intro tothe wonderful, profitable world of forex trading. This articleis free to publish - more information can be found at www.ForexTrader123.com
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