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Learn Forex Trading / Currency Trading Tips
What
Is The Foreign Exchange (FOREX) Market?
There
is a lot to discover about the foreign exchange (forex) market
and you will need to understand
how it works if you plan to take practical steps towards becoming
a successful forex trader.
You will come across several different terms for the forex
market. Forex and fx are both short ways of saying 'foreign
exchange'. It may also be called the currency market, the foreign
currency market, the currency trading market, etc. All of these
terms refer to the same international market on which the currencies
of the world are exchanged and traded.
The forex market is not situated in one particular place.
Practically every country is involved so there is a possibility
of trading currencies in most countries. Because of this, the
market runs 24 hours a day, five days a week. The week
starts on Monday morning in Sydney, Australia (that is, 5 pm Sunday
EST in the USA) and ends at 4 pm EST on Friday in New York.
During that time it is always possible to trade currencies
somewhere in the world.
The forex market is a surprisingly recent phenomenon. Up until
the 1970s, currencies had been stable relative to one another
since the second world war. What was called the 'gold standard'
gave every currency a value in relation to the US dollar. This
system was introduced in order to maintain a stable world economy.
However, in the early 70s the USA abandoned the gold standard
and the values of the different currencies began to change.
Banks immediately began to exchange currencies for profit,
buying low and selling high, instead of only making exchanges
when they needed to transfer money from one country to another.
In effect, each currency became a tradeable commodity. This
was the beginning of forex trading.
The value of a currency is, in a sense, the value of the nation
whose currency it is, so just like companies on the stock exchange,
if a nation is successful the value of its currency increases
and if it is going though a crisis the value drops. These fluctuations
can be great and can happen very fast. The sums involved can
be huge too. The total value of transactions on the forex market
now averages almost $2 trillion dollars a day.
The market is still dominated by international and investment
banks, major corporations and other large financial institutions.
However, it is possible to trade as a private individual through
a broker and with the rise of the internet this has become
much more popular. There are now a large number of people involved
in forex trading through their home computers, although because
they trade much smaller amounts than the institutions, they
only account for around 2% of the total forex market.
The most common exchanges involve the US dollar against other
currencies (especially the euro, British pound, Japanese yen,
Swiss franc and Australian dollar) but it is possible to trade
any one currency against another. Many of the automated forex
robots used by individual traders concentrate on lesser pairs
such as the pound against the euro.
The foreign exchange market is huge and an individual trader
can feel like a tiny ant dodging around the feet of elephants.
But anyone can get into it if they have a little capital that
they are willing to risk. Some brokers will let you start with
as little as $250. Before investing any real money, however,
it is best to practice with a forex demo account while you
learn the foreign exchange basics.
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: 2009
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