Forex trading is the trading in the major currencies of the world.
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.
This is how they look in the trading market:
- USD/CHF etc.
You should know that no dividends are paid on currencies.
If you think one currency will appreciate against another, you exchange that second currency for the first one and stay in it. In case everything goes as you plan it, eventually you can also make the opposite deal in that you may exchange this first currency back for that other and then collect profits from it.
In the past, forex trading was mostly limited to large banks and institutional traders however; recently thanks to the advent of internet and technological advancments, it is now possible for small traders to also take advantage of the many benefits of forex trading just by using the various online trading platforms to trade.
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 can be trading currencies with their Japanese counterparts.
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 forex trading is carried out mostly through the 24 hour-a-day inter-bank currency market. Clients may place take-profit and stop-loss orders with brokers for overnight execution.
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, forex trading 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.
As you can see, the foreign exchange market has come a long way. Being successful at it can be intimidating and difficult when you are new to the game. Let this website be your comprehensive guide to being successful in the forex market.