For those used to buying and selling stocks and bonds the world of currency trading can seem like a strange and dangerous place. But with a little bit of knowledge and some good old fashioned common sense ordinary investors can learn to benefit greatly from even the tiniest changes in the values of currencies around the world.
The key is to understand what Forex trading is and why it can be such a powerful tool for both traders and long term investors.
What is Forex?
If you have an interest in currency trading you probably have come across the term Forex. This term is shorthand for the Foreign Exchange market. This exchange is the largest financial market on the planet, with an average daily turnover of more than one trillion U.S. dollars.
Forex trading involves the buying of one currency and the simultaneous selling of another, resulting in a dynamic and very active market for world currencies. The currencies trade at a floating exchange rate, with each exchange noted as a pair, i.e. Euro/Dollar.
Where Is the Forex Market Headquartered?
Unlike many stock exchanges the Forex market does not have a central location. This market is known as an interbank market, due to the participation of investment banks, commercial banks and other financial institutions in the trading. Forex transactions take place online or over the phone between two counterparts interested in currency exchange.
Who Are Forex Traders?
Forex traders run the gamut in terms of both wealth and experience, from vast networks of investment and commercial banks to individual traders and currency speculators. The Forex network includes money managers, registered currency dealers, institutional investors, money brokers, options traders and of course all those individual investors.
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