The Forex Market

The Foreign Exchange (FOREX) market is the largest financial market in the world. Nearly $4 trillion worth of foreign currencies trade back and forth across the Forex market every day. The FOREX market is the financial exchange on which governments, banks, international corporations, hedge funds, and individual investors exchange foreign currencies. The basic concept of forex trading is similar to those used in equities, bonds, futures, and options markets—the distinction being the product that is traded. In fact, most new forex traders will probably find the transition to forex to be simple and straight forward. The technical indicators and strategies used in other markets can be used in the forex market as well.

Main points of Forex

-The Forex market operates nonstop throughout the week as it is a 24/5 service for traders.

-The extreme liquidity of the market has resulted to up to $4 trillion of daily trading volume.

-The market for currencies is global, enabling a trader to trade with any currency in the world at any time.

-The market is constantly changing rapidly; enabling traders with an increased chance to make money.

-Trading can occur on any given moment, whether it is a rising or falling trade.

-The offer of high leverage enables traders to benefit from large volume trading.

-Forex does not charge commission, only a spread fee charge.

-Forex market are extremely liquid, there are always trading opportunities.

Forex trades in Pairs

Everything is relative in the forex market. The euro, by itself, is neither strong nor weak. The same holds true for the U.S. dollar. By itself, it is neither strong nor weak. Only when you compare two currencies together can you determine how strong or weak each currency is in relation to the other currency.

Currencies always trade in pairs. You never simply buy the euro or sell the U.S. dollar. You trade them as a pair. Some of the most well-known currency pairs are:

EUR/USD        Euro / US Dollar

GBP/USD        British Pound / US Dollar

USD/JPY         US Dollar / Japanese Yen

By determining what is going to happen to a currency pair in the future, Investors, and Speculators can take advantage of potential intraday and future price movements. Currencies can move up, down or even move sideways if you able to determine the possible movements you can profit considerably and very quickly from these moves.

Ultimately it is investors, hedgers and central banks who make currency pairs move as they buy and sell different currencies, but these participants buy and sell for different reasons. Either they see something happening fundamentally in the global economy that makes them believe a currency is going to get stronger or they see something happening fundamentally that makes them believe a currency is going to get weaker. In other words, they watch the fundamentals and make their decisions according to what they see.

Currency or Currency Pair   Common Terminology
GBP (British Pound)        Sterling
CAD (Canadian Dollar)   Loonie
USD (U.S. Dollar)   Greenback
AUD (Australian Dollar)     Aussie
NZD (New Zealand Dollar)   Kiwi
EUR/USD (Euro/U.S. Dollar)      Euro
GBP/USD (British Pound/U.S. Dollar) Cable
USD/JPY (U.S. Dollar/Japanese Yen) Dollar – Yen
USD/CHF (U.S. Dollar/Swiss Franc)        Dollar – Swiss or Swissy
USD/CAD (U.S. Dollar/Canadian Dollar)    Dollar – Canada

 

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