What is Forex?
The Forex market is the largest, most actively traded market in the world, with over $1.9 trillion changing hands daily. Forex trading is transacted in pairs, where two foreign currencies are paired together. And, investors are seeking to profit from movements between the two currencies. There is not a physical trading floor as seen in markets such as the New York Stock Exchange or the London Exchange but rather all Forex transactions are completed over the counter.
One of the most unique features of trading the Forex market is that it is open 24 hours per day during its trading days, allowing investors globally to transact business at any point throughout their day. The fact that this market is open 24 hours per day also lends greater volatility in the market as slight changes in governments or economies internationally can immediately change the foreign exchange rate for a given currency.
Some of the most attractive features of the Forex market to investors include:
- A liquid market, making it quick and easy to transact trades
- Volatility in the currencies traded lending numerous profit making opportunities daily for investors
- Investors can profit in both rising and declining currency markets based on pairings
- Lower margin requirements than other trading platforms creating the opportunity for forex investors to become leveraged in the market
- Low trading transaction costs
In the past, only institutional investors traded on the Forex market. Some of the largest traders on this market include banks, commercial companies, central banks, hedge funds, and investment management firms. Now, individual investors and institutional investors trade forex daily, causing the rise in both transaction volume and exchange of money daily occurring on Forex.
Forex pairs are most commonly EUR/USD, USD/JPY, GBP/USD and USD/CHF. While these are the most well known pairs, there are other pair options as well to consider trading. While many traders on traditional exchanges are seeking significant movements in their holdings prior to selling, Forex traders are seeking small movements in currency pairings on a daily basis more similar to a day trader.
There are a number of factors that will drive the price changes on the Forex market. But, the most significant drivers of the price of a Forex currency include economic factors within a particular country, political conditions and changes and market psychology.
Forex is not only the largest market in the world, it is also the oldest. Individuals and businesses have been trading currencies for generations. Now, with technology, trading between currencies is easier than ever, with most individual online forex traders transacting business from the comfort of their own homes.
Paul Mac Donald owns and runs a website devoted to providing information on Stock and Forex Trading. For more information, visit his site http://www.stocktradingforex.com
Copyright © 2008 Paul Mac Donald
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