World currencies are
traded on the foreign exchange markets. These foreign exchange markets are
referred to as Forex. Forex is the largest financial market in the world.
Although there is no physical structure such as the NY stock exchange on Wall
Street, more than $3 trillion in trades are conducted daily on Forex markets, more than ten
times the size of the combined daily turnover on all the world's equity
markets. The biggest foreign exchange trading center is the UK where large
banking institutions initiate buy and sell prices of the different currencies.
Forex markets are open 5
days a week 24/5 so trading can be done almost around the clock. Trading in Forex
has more than doubled over the last 10 years due largely to the growing
importance of foreign exchange as an asset.
Till recently, Forex was
traded primarily by large banks, multinational corporations and wealthy
persons. Today, individuals, placing their trades through forex brokers, make up a
good portion of Forex traders. Investors, disillusioned by the performance
of their stocks or bonds, are turning more and more to Forex to make
some quick profits.
The truth is, however,
that more people lose money in Forex than come out ahead. Trading Forex
is not as simple as you think.
Understanding the price movements of the currency pairs takes a certain
amount of understanding and experience which most beginner traders do not
possess. They jump into the market
blindly and almost inevitably lose all their money.
In addition, with little
knowledge and expertise to fall back on, novice traders fall prey to Forex
scams. Although the majority of Forex brokers are honest and follow their
country’s regulatory restrictions, there are some brokers that will open your
account, take your money and then abscond without leaving a forwarding address.
Others resort to different fraudulent
means to get your money.
Forex is unique in that
the factors that affect the price movement differ from those that govern other
markets. Political and social influences in a particular country can have a
direct impact on the currency price and its ratio to the other currency in the currency
pair.
Foreign currencies are
traded against one another; each pair of currencies thus constitutes an
individual product. Brokers often
participate in the Forex markets by offering speculative trading; others
provide the actual physical delivery of the purchased currency. Forex rate
fluctuations are the result of real currency movements as well as expected
currency changes. These changes can be caused by the country’s interest rates,
inflation, GDP growth, surpluses or deficits as well as by other economic
conditions. Most movements are the result of a combination of the above
factors.
Banks may trade Forex on
behalf of customers, but mostly trade for their own account. Individual Forex
traders open accounts with online brokers who supply them with the information
and services they would expect as an account holder. Many brokers provide 24-hour chat or email
assistance which is helpful for the beginner trader.
