How Does The Average Tom, Dick Or Harry Start Off Trading FX?
The Foreign Exchange markets (also referred to as Forex or the FX market) is the wealthiest financial market in the world, with over $1.5 trillion changing hands daily.
This massive sum of money is greater than all US equity and Treasury markets combined!
Unlike other financial markets that operate at a centralized place (a stock exchange, for example), the worldwide Forex market has no base location. It is a global electronic network 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 operates 24 hours a day, corresponding to the opening and closing of financial centers in different places all across the world, beginning each day in Sydney, then Tokyo, London and New York. At any time, in any location, there are traders, making the Forex market the most liquid market in the world.
Traditionally, access to the FX has been made available only to banks and other substantial financial institutions. With advances in technology over the years, however, the Forex markets are now available to everybody, from banks and financial institutions to money managers to private traders trading retail accounts.
The Forex market is very different than buying and selling foreign currencies on the futures market and a lot easier than trading stocks or commodities.
Whether you are aware of it or not, you already play a role in the FX markets. The simple 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 decided not to hold the currencies of other nations. Your purchases of stocks, bonds or other investments, along with money deposited in your bank account, reflect investments that rely heavily on the solidity of the value of their denominated currency: for instance, the dollar (USD).
Due to the changing value of the dollar (USD) and the resulting fluctuations in exchange rates, your investments may change in value, affecting your over-all financial status. With this in mind, it should be no wonder that many investors have taken advantage of the fluctuation in Exchange Rates, using the volatility of the Foreign Exchange market as a way to increase their capital.
Example: suppose you had $1000 and bought Euros (EUR) when the exchange rate was 1.50 Euro to the Dollar (USD). You would then have 1500 Euro . If the value of Euro against the US Dollar increased then you would sell (exchange) 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
One Euro is worth $1.50 US dollars.
The first currency (in this example, the euro) is referred to as the base currency and the second, the dollar (/USD) as the quote or counter currency.
The Forex market needs to exist so a country like Germany can sell products in the United States and be able to receive Euros in exchange for dollars (USD).
The Foreign Exchange market plays a vital role in the world 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 Forex market.
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