Over $1.2 trillion changes hands every day in the Forex (Foreign Exchange) Market, making it the largest market in the world. This figure represents more turnover than all the world's stock markets combined. Trading forex involves trading the currency of one country against another. The rate at which they are exchanged is called the exchange rate. Traders can execute trades with their financial institution or broker through the phone or on the internet. Forex is a growing market, only recently made available to small traders with the invention of the internet. At the moment there are over 6 million trading accounts, compared to 1.7 million in 1997.
The most commonly traded pairs are called the 'Majors' and consist of the Euro Dollar (EUR/USD); the British Pound (GBP/USD); the Japanese Yen (USD/JPY; and the Swiss Franc (USD/CHF). The Canadian Dollar (USD/CAD) and Australian Dollar (AUD/USD) are also commonly traded. The forex market operates through a global network of participants rather than through a central exchange with most brokers and banks using a centralized feed to ensure the reliability of their quotes. The quotes are usually made up from the top 300 or so large institutions. It has been estimated that anywhere from 70%-90% of the forex trades are speculative. This means that the person or institution placing the trade has no intention of taking delivery of the currency, they are simply speculating on the movement of the currency.
Clearly with $1.2 trillion being traded, the forex market is extremely liquid. This means that with a click of your mouse you can immediately buy and sell forex at the prevailing rate. You will never be left holding currency you want to sell.
With the invention of the internet, trading forex has never been easier. As forex is such a highly liquid market, there are plenty of brokers to choose from, offering differing rates of commission (also referred to as spread) and trading platforms with different features. Most platforms will allow you to pre-enter buy and sell orders at your preferred price, along with stop loss (to minimize your loss if the trade goes against you) and profit target. Many firms also offer free 'demo' accounts. A demo account will allow you to practice your skills trading with virtual money before you put any real money at risk. Most brokers also offer real-time charts for forex and popular technical analysis tools.
A large advantage of trading forex is the amount of leverage that can be used with some firms offering as much as 200 to 1 leverage, allowing you to place a $10,000 trade with a $50 margin. The use of leverage can help those with limited funds to trade large quantities on the forex market. A large number of brokers also offer 'mini' accounts allowing traders to place much smaller trades than standard accounts.
Forex trading also has the plus that you can trade both sides of the market, you are able to enter trades both LONG (anticipating the market will go up) and SHORT (expecting the market to go down).
The forex market is open 24 hours, closed only from Friday evening to Sunday evening. This means you will never be left with opening/closing gap problems. The fact that the forex market is open 24 hours makes it a more accessible market for part-time traders as trades can be placed at a time that is convenient for you.
For more information on trading forex and day trading forex, visit the link below or try searching in google.
Jon is the owner of
iBlogForex, a blog about every aspect of the Forex market including information for beginners forex trading.
