Forex Market Fundementals

By mosesbet · Filed Under Spread Betting Comments Off on Forex Market Fundementals 

The Foreign Exchange Market, Forex, has only been in existence since the 1970s. It was established shortly after the United States dropped the gold standard. This plunged all other foreign currencies to swing wildly and become very unstable. Previous to this most nations had tried to keep their currencies on the level with the US Dollar, so a foreign exchange of currencies wasn’t necessary. But when this stopped being feasible the major international banks decided that the best solution was to treat currencies like trading any kind of stock. When a currency loses value to buy it and when it is strong to sell it for a profit.

Unlike other financial exchanges or stock markets the Forex does not have a single trading location. Traders can work from their home office, from a bank, or from a traditional trading location. The Forex is the largest financial market in the world and averages almost $2 trillion dollars in trades daily. The market is open for trading 24 hours a day, so even if it is not normal business hours in the US a trader can still initiate traders with someone where it is a normal business day. Although dozens of currencies are represented and traded on the Forex market the US dollar, the Euro, British pound, Japanese yen, Swiss franc, and the Australian dollar are the most popular.

While the market is open to all individual traders or companies the number of individual traders is still a small fraction of traders on the Forex. Only about 2% of the overall volume of traders are individuals. The overwhelming majority are the international banks, government banks, corporations, hedge funds, and investment banks.

Forex trading is always done in pairs. You buy one kind of currency by selling another. The trick is to initiate a trade when it is reasonable that the currency being bought it going to rise higher in value than the one you are going to sell. And if this does indeed happen then the trader makes another trade and sells the currency that they had originally bought and buys the one they sold. And thus, the profits are made.

As an example let’s take a pairing of the British pound and the Euro. The pairing on the charts will look like this GBP/EUR 1.3300. This means that a trader will be buying one British pound for 1.33 Euros. If the trader had reason to believe that the Euro was going to jump in price and be more valuable than the pound they can buy 100,000 Euros and sell the corresponding number of pounds. If the trader’s prediction is correct and the price of the Euro starts to look like this EUR/GBP 1.4700 then the trader can then sell those Euros and make a profit of 0.14 per unit.

The Forex market can seem intimidating, daunting, complicated, and dominated by organizations that have much more buying power than the individual. However, anyone dedicated enough to learn how the market works and how to make it profitable have the opportunity to make some money. The entire world runs on money so it is reasonable to assume that trading currencies will always be a profitable but risky venture.

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