The Foreign Exchange Market , better known as FOREX , is a worldwide market for buying and selling currencies . It handles a large amount of the transactions 24 hours a day, 5 days per week . Daily exchanges are worth approximately $ 1.5 trillion ( U.S. dollars ) . In comparison, the United States Treasury Bond market averages $ 300 billion per day , and the U.S. stock exchange about $ 100 billion per 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 1970s , but with the technological advances of the FOREX 80 ' s extensive trading levels of $ 70 billion per day to the current level of $ 1.5 trillion.
Who Trades in FOREX ?
The FOREX is made up of about 5000 trading institutions such as international banks, central government banks ( such as the U.S. Federal Reserve) , and commercial companies and brokers for all types of foreign currencies . 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 over the phone 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 from small movements to generate profits. In the market
Even though there are many big players in FOREX , it is accessible to the small investor thanks to recent regulatory changes . 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 amended so that the large interbank units to be broken down into smaller lots. Each party has a value of approximately $ 100,000 and is accessible to the individual investor through ' leverage loans extended for trading. Usually a lot can be operated with a leverage of 100:1 means that U.S. $ 1,000 will allow you to control a $ 100,000 currency exchange .
Benefits for Trade in FOREX
Liquidity - Because of the size of the Foreign Exchange Market , investments are highly liquid . International banks are continuously providing bid and ask quotes and the large number of transactions per day ensures that there is always a buyer or a seller for every 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 . Transactions 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 - can not ' trading' in FOREX there .
No Commission - Brokers earn money by setting a spread - can be bought at and what it can be sold at the difference between what a coin .
How does it work?
Currencies are always traded in pairs : the U.S. 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 rise 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 gains due to the large amount of money involved in each transaction . At the same time , 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 the loss.
Ron King is a full - time researcher , writer, and web developer . Visit FOREX4U to learn about this fascinating investment . Medium more
Copyright 2005 Ron King . This article may be reprinted if the resource box intact.
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