Forex Trading 2013

The FX markets (FOREX, foreign exchange or currencies market) allows businesses, individuals and hedge funds to trade in different currencies, speculate on the market and the FX markets help to support international trade.

To begin trading on the FX markets online, you will need to open an account with one of the FX platforms below.

Best FX Brokers

More about the FX Markets

The foreign exchange markets (FX, FOREX) began in 1970 after liberal governments switch from a fixed exchange rate system to a fstemloating exchange rate system.  This replaced the liberal economic system that was agreed up at the Bretton Woods conference shortly after the 2nd World War (this in turn replaced the outdated Gold Standard International Monetary System).

The FX markets are completly internationalised, and their liquidity makes it one of the most actively traded financial markets.  According to the Bank for International Settlements, daily turnover in the foreign exchange markets is estimated at $3.98 trillion. This represent a growth of 20% in the FX markets in the last 12 months.

The primary purpose of the foreign exchange markets is to assist interntional trade and investment, by allowing businesses and individuals to convert one currency into another at the floated exchange rates.  The FX markets are thought to be the closes that any market or system has come to the economic theory, perfect competition (not withstanding central bank intervention).  The huge liquidity of the market and array of buyers and sellers on each side keeps currency exchange rates at near true levels.  Any surge in demand or supply will lead to near real time price reflections.

In terms of helping international trade, the FX markets set the exchange rate for each currency and allows foreign businesses to import/export goods in another currency.  For example, a US company can import goods in Pounds Sterling, even though its revenue comes from US Dollars. Likewise, a UK importer can accept payment in US Dollars and then convert theses into Pound Sterling at the current exchange rate.

Interestingly, around 70% – 90% of activity on the FX Markets is set by hedge funds or “positional traders”.  In other words, the businesses or individual who has bought the currency has no intention on actual taking delivery on the currency in the end.  They will end up exchange it into another currency and aiming to make a small profit on movement of that currency.  Since 1996, hedge funds have gained a reputation for speculating billions worth of dollars on currency movements and disrupting the markets.  This has even hampered the potential influence of Central Banks in regulating the market, yet the overall effect is still debated by economists.  Milton Friedman has argued that positional traders help to stabilise the foreign exchange markets, and perform an important role in transferring the risks of trading from those that don’t wish to bear it, to those that do.  At the opposite end of the spectrum, Josepth Stiglitz (Head of the World Trade Organisation) suggests that this argument is based more on a free market political motive than economics.

Be Sociable, Share!