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How Does Forex Trading Work?
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The
foreign exchange (also called Forex) market is a place for the trading
(buying or selling) of currencies. According to Investopedia, a Forbes
website, "The forex market is the largest, most liquid market in the
world with an average traded value that exceeds $1.9 trillion per day
and includes all of the currencies in the world." Foreign exchange
trading is available 5 days a week and 24 hours a day in major financial
cities from Zurich to New York to Sydney to Hong Kong. In the beginning
only institutional investors, large companies, banks, and hedge funds
could trade currencies. But the Internet made it possible for small
investors to also buy and sell currencies.
The
foreign exchange (also called Forex) market is a place for the trading
(buying or selling) of currencies. According to Investopedia, a Forbes
website, "The forex market is the largest, most liquid market in the
world with an average traded value that exceeds $1.9 trillion per day
and includes all of the currencies in the world." Foreign exchange
trading is available 5 days a week and 24 hours a day in major financial
cities from Zurich to New York to Sydney to Hong Kong. In the beginning
only institutional investors, large companies, banks, and hedge funds
could trade currencies. But the Internet made it possible for small
investors to also buy and sell currencies.
What is the Foreign Exchange Market
-
Currencies
are an important part of the world economy. For business to take place
on an international level and for people to travel around the world, the
exchange of currencies must take place. Unlike stocks and commodities
which trade on an actual exchange, forex trading takes place completely
via computer.
Currency
prices are based on supply and demand. Trading currencies is one of the
least volatile investment vehicles around because the daily price
movements are very small. For investors to make money with forex trading
they use leverage. For a small amount of money investors get to control
a large amount of currencies. It is like borrowing money such as on
margin to increase the return on investment. In some cases investors
uses leverage at a ratio of 250:1. This means that for an investment of
$1,000 a person or company can control $250.000 worth of currencies.
There are many possibilities with the forex market. Investors can hold
position for a few minutes or for a few months.
Currencies
are an important part of the world economy. For business to take place
on an international level and for people to travel around the world, the
exchange of currencies must take place. Unlike stocks and commodities
which trade on an actual exchange, forex trading takes place completely
via computer.
Currency
prices are based on supply and demand. Trading currencies is one of the
least volatile investment vehicles around because the daily price
movements are very small. For investors to make money with forex trading
they use leverage. For a small amount of money investors get to control
a large amount of currencies. It is like borrowing money such as on
margin to increase the return on investment. In some cases investors
uses leverage at a ratio of 250:1. This means that for an investment of
$1,000 a person or company can control $250.000 worth of currencies.
There are many possibilities with the forex market. Investors can hold
position for a few minutes or for a few months.
How to Trade
-
Investors
have three ways to trade foreign currencies. The largest market is the
spot market which allows investors to buy and sell currencies at the
current price based on supply and demand. The forward market does not
trade actual currencies. Instead two investors enter into a contract to
buy and sell specific currencies at a specific price and at a specific
time. In a forward market transaction, the two people trade contracts
over-the-counter (OTC.). The futures market is the third option. In the
futures market investors trade standardized futures contracts on
commodities exchanges like the New York Mercantile Exchange. While many
infomercials state the ease and profitability of currency trading for
the average person, it is not as simple as many people are lead to
believe. But with education n an individual investor can learn to trade
foreign currencies in a manner that best suits his needs.
Investors
have three ways to trade foreign currencies. The largest market is the
spot market which allows investors to buy and sell currencies at the
current price based on supply and demand. The forward market does not
trade actual currencies. Instead two investors enter into a contract to
buy and sell specific currencies at a specific price and at a specific
time. In a forward market transaction, the two people trade contracts
over-the-counter (OTC.). The futures market is the third option. In the
futures market investors trade standardized futures contracts on
commodities exchanges like the New York Mercantile Exchange. While many
infomercials state the ease and profitability of currency trading for
the average person, it is not as simple as many people are lead to
believe. But with education n an individual investor can learn to trade
foreign currencies in a manner that best suits his needs.
