How Can The Typical Tom, Dick Or Harry Start In Trading The FX Markets?
The Foreign Exchange market (often referred to as Forex or the FX) is the biggest financial market in the world, with upwards of $1.5 trillion changing hands every day.
This massive total of money is greater than all US equity and Treasury markets put together!
In contrast to other financial markets that function from a centralized place (a stock exchange, for instance), the worldwide Forex market has no central office location. It is a worldwide electronic system of banks, financial institutions and private traders, all involved in the buying and selling foreign currencies.
Another major feature of the forex market is that it works 24 hours a day, corresponding to the closing and opening of financial centers in countries all across the world, beginning every day in Sydney, then Tokyo, London and New York. At any time, in any place, there are sellers and buyers, making the Foreign Exchange market the most liquid market in the world.
Conventionally, access to the Forex market has been made available only to banks and other substantial financial institutions. With advances in technology over the years, however, the Foreign Exchange market is now available to everyone, from financial institutions and banks to money managers to private traders trading retail accounts.
The Foreign Exchange market is very different than buying and selling foreign currencies on the futures market and a lot easier than trading commodities or stocks.
Whether you are aware of it or not, you already play a role in the Foreign Exchange market. The innocent fact that you have money in your wallet makes you an investor in currency, particularly in the dollar (USD). By holding Dollars (USD), you have chosen not to hold the currencies of other states. Your purchases of stocks, bonds or futures, along with cash deposited in your bank account, represent investments that depend heavily on the integrity of the worth of their nominated currency: for example, the US dollar.
Due to the changing value of the dollar (USD) and the resulting fluctuations in exchange rates, your investments may shift in value, affecting your total financial base. With this in mind, it should be no surprise that many investors have taken advantage of the movement in Exchange Rates, using the changeability of the Foreign Exchange market as a way to increase their capital.
Example: suppose you had $1000 and bought Euro when the exchange rate was 1.50 Euros (EUR) to the Dollar. You would then have 1500 Euros (EUR) . If the value of Euros against the US Dollar increased then you would exchange (sell) your Euros for Dollars (USD) and have more dollars (USD) than you had to begin with.
For example you might see the following:
EUR/USD last trade 1.5000 means
1 Euro is worth $1.50 US dollars.
The first currency (in this example, the euro) is called the base currency and the second, the (/USD) as the quote or counter currency.
The Foreign Exchange markets needs to exist so a country like Portugal can sell products in the United States and be able to receive Euros in exchange for dollars.
The FX plays a vital role in the worldwide economy and there will always be a tremendous need for the buying and selling foreign currencies. International trade increases as technology and communication increases. As long as there is international trade, there will be a Foreign Exchange market.