Introduction To FOREX

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.

---

Eight Questions to Ask Your Financial Advisor

You may like your financial advisor, but is he really... Read More

Mutual Fund Selection Made Simple By Indexing!

Non-indexed mutual funds try to keep it secret that actively... Read More

Is Offshore Banking for You?

You've probably heard about people who keep their money offshore.... Read More

Have You Ever Seen A Map of the World Turned Upside Down?

For those accustomed to viewing things a certain way, it... Read More

Boost Your Income With Financial Spread Betting

About 6 years ago I started to notice that certain... Read More

Annuity Help

Many people today are looking for annuity help. The biggest... Read More

Protecting the Tax Advantage of Your Deferred Compensation

The American Jobs Creation Act of 2004 imposed strict new... Read More

Maniac Investment

Let's first understand what maniac means. According to Webster a... Read More

401(k) Plans

I've been in and interested in the stock market so... Read More

Retire Dollar Smart

Jim Miller is a registered investment advisor. This means that... Read More

Gold; What Type of Gold to Buy

JewelryThe advantages are:? Gold Jewelry is the easiest of the... Read More

Tyranosaurus Rex

Everyone knows T Rex was the most fearsome of all... Read More

Getting Started In Investing

Are you ready to open your pathway to financial independence?Well... Read More

How to Invest Your Money

Think carefully on how to invest your money because if... Read More

Everybody Wants to Know How to Invest

Those unfamiliar with the process of making and managing investments... Read More

Going Offshore For Asset Protection

There are a number of key reasons why individuals and... Read More

Are You An Investment Dummy Like Me?

I am good at a few things. I can certainly... Read More

The Biggest Oil Opportunity in the World ? And How You Can Profit From It

Where is the second biggest deposit of oil reserves in... Read More

Emotions: A Traders Worst Enemy; Get Rid of Fear and Greed - Youll be Glad You Did

You hear it over and over and over in books,... Read More

Bad News - Why The Financial News Media Can Cost You Money!

The communication innovations we have around us today like the... Read More

The Convertible Craze Brightens The Future Of Equities

Convertibles are stealing the show with their safe investment image... Read More

5 Ways To Protect Your Bond Portfolio From Rising Interest Rates

The Federal Reserve recently raised its target federal funds rate... Read More

Trading Expert Discovers Ways To Beat Stock Market Odds With Money Management

The first point to mastering money management is that you... Read More

Find a Methodology and Minimize Investment Madness

There are many reasons to be investing these days, and... Read More

Creating Momentum with Options - Pro and Cons of At-the-money, In-the-money, and Out-of-the-money

To create momentum in your options trading you need to... Read More

Success Trading: Some Basic Terminology for New Traders

The world of trading can get very complex because the... Read More

Press Release Scams and Successes: Reading Between the Lines

Press releases are a means through which companies can keep... Read More

Finding a Broker

"Hey Joe! I need help finding a broker. I notice... Read More

Investing in Car Dealerships: Doing Your Homework

This article attempts to help give the investor a broader... Read More

Copy Cat or How to Use a Successful Trading System

How many books have you read about successful traders? How... Read More

Is Your Mutual Fund the Right One for You?

Mutual Funds are considered to be one of the best... Read More

Economic Survival in the 21st Century - the Three Key Questions to Ask

In this "special report", I want to pose a few... Read More

Remembering TEOTWAWKI and Learning from It

Its only been about 5 years since we had major... Read More