Wednesday, August 20, 2008

Introduction To Forex Currency Trading

Forex or Foreign Exchange trading is trading foreign currencies. The forex market is the largest financial market in the world with daily trade touching 3 billion dollars. It is also the most liquid market. Till about a decade ago, the forex market had only big banks, multi national corporations and institutional firms participating in the trade.

This was because the tools and systems required to trade in forex was available only to them. But the advent and development of internet has changed all that. Now, small companies and even individuals have the opportunity to be a part of the forex market.

Forex trading is done in pairs of currencies. There is a bid and ask price for each transaction. The difference between the bid and ask prices is called as spread. The value of this spread determines the profit margin for the trader. There are four currency pairs that dominate the forex market trade. US dollar - Euro, US dollar - Yen, US dollar - Swiss Franc and US dollar - British Pound. Before investing in the forex market, it is important to study and analyse which currency is likely to appreciate in value with respect to other currencies. For example, if a trader bought 100 Yen at 50 US dollars and sold the 100 Yen at 70 US dollars in a week, the return on investment for him is 20 US dollars.

Forex markets are open 24 hours a day, from Sunday evening to Friday evening. It operates across the globe from Asia to Europe to North America. There are no formal control bodies to govern the forex market. The forex market does not have a formal exchange for transactions. All trading is done between the forex dealers or brokers directly and not through an exchange. Generally the large international banks determine the bid and ask prices of currencies and hence they have the maximum say in deciding the state of the forex market at any given time.

Until recent times, because there were many regulations like huge minimum transaction sizes that prevented individual players from entering into the forex market. Now there are forex brokers who have made this possible for individuals. Anyone can buy and sell currencies in any quantity. The individual investors buy and sell through these brokers. Thus, the brokers are able to meet the minimum transaction size required by the forex market.

They purchase in large blocks and then distribute it among their investors. Visit Forex Currency for more information.

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