The Foreign Exchange Market, better known as FOREX, is a worldwide 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 when fixed currency exchanges were abolished. 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 expanded from trading levels of $70 billion a day to the current level of $1.5 trillion.
Who Trades in FOREX?
The FOREX is made up of about 5,000 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. There is no centralized location of FOREX; major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt. All trading is done by telephone or Internet. Businesses use the market to buy and sell their 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.
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 ensures 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.
Ron King is a full-time researcher, writer, and web developer. Visit FOREX4U to learn more about this fascinating investment medium.
Copyright 2005 Ron King. This article may be reprinted if the resource box is left intact.
Okay, so I can tell you I have sat in... Read More
What is an Angel Investor? An Angel is usually a... Read More
Several days ago, the Commerce Department reported that May's factory... Read More
The perfect company - it's the holy grail of the... Read More
Clean Up (includes the insides and the outside of a... Read More
While a U.S. Representative to the Asian Development Bank Executive... Read More
Investments are scary for some people, especially those who have... Read More
Do you ever feel like you haven't been told the... Read More
The syntax is tortured, the grammar mutilated, but the message... Read More
One important aspect of trading the markets is to understand... Read More
FOREX, the term for the FOReign EXchange market, is an... Read More
Find out everything you need to know about buy to... Read More
A strategic question. Why indeed?1. A penny share would usually... Read More
Press releases are a means through which companies can keep... Read More
Penny stocks and options are high volatility investments that attract... Read More
I am sure you have probably read about the power... Read More
A way that investors get ripped off and in a... Read More
Some lines from a movie never leave your mind; I... Read More
Over the course of the past two months, readers have... Read More
The communication innovations we have around us today like the... Read More
Investors usually don't have an aversion to buying an asset.... Read More
Think carefully on how to invest your money because if... Read More
You all know what CYA stands for. Of course, Cover... Read More
Have you had one of those huge investment winners ?... Read More
In my opinion trading is the most exciting and best... Read More
How to Collect Rare Coins For Fun and ProfitTime has... Read More
Have you ever noticed how some words in the English... Read More
To understand stock options, we need to look at Webster’s... Read More
One among many ways you lose money in non-indexed mutual... Read More
Scams and frauds are designed to take your money through... Read More
Grading coinsThe condition of a coin is commonly summarized by... Read More
The Moving Average Convergence Divergence charts, or MACD charts for... Read More
Death and taxes! The certainties of life! And then, of... Read More
Everyone's talking about China. Don't miss the opportunities in the... Read More
1. Lacking an investment plan a/k/a/ "Don't take a trip... Read More
Motivational guru Tony Robbins teaches that the reason for doing... Read More
The Value of Gold in a Era of Paper Assets,... Read More
Investors are still too slowly realizing what the academics have... Read More
If you've decided to stock some money away in a... Read More
Gearing is where you borrow money to invest. As already... Read More
RETIREMENT PLAN CONSIDERATIONS are something every small business person needs... Read More
Non-indexed mutual funds try to keep it secret that actively... Read More
"All human power is a compound of time and patience!"... Read More
A Business Plan, as all good entrepreneurs starting out in... Read More
When you start your program to purchase your "ideal" company,... Read More
The one thing I can think of that most affects... Read More
Mutual Funds are considered to be one of the best... Read More
The Light Crude Continuous Contract hit an all-time high at... Read More
Press releases are a means through which companies can keep... Read More
A strategic question. Why indeed?1. A penny share would usually... Read More
If you do not have an investment plan in the... Read More
The technology boom of the '90s romanticized the "rags-to-riches" ideal... Read More
Let's face it, you're on a roll. After getting down... Read More
There are many different ways to invest in world markets:... Read More
Arthur Levitt, during his tenure at the SEC, experienced many... Read More
As I take my leisurely walk with my dog through... Read More
Whether you're a novice investor or an experienced stock picker... Read More
Do you rule your superannuation or does it rule you?It's... Read More
Everyone knows that the Holy Grail of investing and trading... Read More
Trend following also called momentum trading is the simplest and... Read More
In 1519, Hernando Cortes, beached on the shores of unexplored... Read More
It always amazes me how much stock market investors resemble... Read More
Many people hear "retirement" and think- what? 401K? Roth vs.... Read More
Firing an employee seems to be easier and easier for... Read More
How to Collect Rare Coins For Fun and ProfitTime has... Read More
Several days ago, the Commerce Department reported that May's factory... Read More
Investing |