Forex is an acronym for Foreign Exchange Market (also referred to as the FX market) and is the world’s largest financial market, trading over $4 trillion every day.
This is larger than all the world’s Stock and Treasury markets combined!
The Forex Market is a truely global marketplace, it does not operate
from a centralised location but from an electronic global network of financial institutions, banks and brokers. The Forex Market doesn’t sleep, trading 24 hours a day starting in Asia and ending with New York. This is the most liquid market in the world, with traders buying and selling currencies constantly somewhere in the world.
Until recently only government, banks and other large financial institutions were able to trade Forex, but with deregulation, advances in technology and the internet, the Forex Market is now open to anyone.
The Forex Market is very different and some consider a lot easier than trading the futures market, or stocks and commodities.
You may not be aware, but you and the Forex Market already have a relationship. If you have cash or money in the bank the value of that money is impacted by the fluctuations of the Forex Market. If you have travelled overseas, you have probably purchased travellers cheques and later redeemed them for better or worse, this is also influenced by the movement of the Forex market.
Suppose you took a jaunt to Europe, you had US$1000 and bought Euros when the exchange rate was 1.50 Euros to the dollar. You would have received 1500 Euros. If the value of Euros increased against the US dollar and you sold (exchanged) your Euros back to dollars you would have received more dollars than you started with.
Is it suprising then that many investors take advantage of this fluctuation in Exchange Rates, using the volatility of the Foreign Exchange Market to increase their investments. Could you do it too? Yes, if you are prepared to learn the necessary skills.
The Forex is vital in the world economy and as long as there is international trade there will always be a need for the exchange of currencies. For one country to sell products to another the FX market has to exist so that a comparative value can be set prior their currencies being exchanged.
Risks of currency trading:
All Forex Trading is based on hedging and margin trading. Margin trading (1:100) means that if you trade $1000 of your capital, your Broker will allow you to trade $100,000 or 100 times your capital. You are loaned 100 times your investment. With some brokers this margin rate can go much higher.
This increases your ‘Lot’ size and subsequent profits or losses by the same proportion.
Margined currency trading is an extremely risky form of investment and is only suitable for individuals and institutions capable of handling the potential losses that can occur. This is why you need to understand what is involved in Forex trading, otherwise one trade has the potential to wipe you out. It all comes down to Risk Management. Given the possibility that you could lose your entire investment, speculation in the foreign exchange market should only be conducted with capital funds you are willing to risk, in consideration that if lost, it will not significantly affect your financial well-being.
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