There are many markets: markets for stocks, futures, options and
currencies. These are probably the most accessible markets for
everyday traders like you and I. People easily understand the
basics of trading shares. I began trading shares first and then
I moved on to trading currencies.
If you do not know a lot about currency trading, allow me to
introduce it to you. It is what I trade and I believe that it is
one of the best markets to trade because of its efficiency. The
transaction costs to execute a trade are minimal and most
brokers provide you with the tools and data you need to make
your trading decisions, they usually provide them for free. The
market is open 24 hours a day which allows you to design your
trading hours around your daily commitments. It is very
volatile, which is great for those people who are looking for
day-trading opportunities.
The foreign exchange market is the market in which currencies
are bought and sold against one another. People may loosely
refer to this market under different labels, including foreign
exchange market, forex market, fx market or the currency market.
The foreign exchange market is the largest market in the world,
with daily trading volumes in excess of $1.5 trillion US
dollars. All transactions involving international trade and
investment must go through this market because these
transactions involve the exchange of currencies.
It is the most perfect market that exists because it has a large
number of buyers and sellers all selling the same products.
There is a free flow of information and there are little
barriers to participate.
The currency exchange market is an over-the-counter (OTC) market
which means that there is not one specific location where buyers
and sellers can actually meet to exchange currencies. Instead,
transactions are conducted by phone, fax, e-mail or through the
websites of brokers who specialize in currency trading.
The major dealing centres at the time of writing are: London ,
with about 30% of the market, New York , with 20%, Tokyo , with
12%, Zurich , Frankfurt, Hong Kong and Singapore , with about 7%
each, followed by Paris and Sydney with 3% each. Because of the
fact that these centres are all over the world, foreign exchange
traders can execute transactions 24 hours a day. The market
only
closes on the weekends.
THE MAIN 'PLAYERS' IN THE FOREX MARKET
The five broad categories of participants are: consumers,
businesses, investors, speculators, commercial banks, investment
banks and central banks.
Consumers, including visitors of countries, tourists and
immigrants, do need to exchange currencies when they travel so
that they can buy local goods and services. These participants
do not have the power to set prices. They just buy and sell
according to the prevailing exchange rate. They make up a
significant proportion of the volume being traded in the market.
Businesses that import and export goods and services need to
exchange currencies to receive or make payments for goods they
may have bought or services they may have rendered.
Investors and speculators require currencies to buy and sell
investment instruments such as shares, bonds, bank deposits or
real estate.
Large commercial and investment banks are the 'price makers'.
They are the ones who buy and sell currencies at the
bid-and-offer exchange rates that they declare through their
foreign exchange dealers.
Commercial banks deal with customers on one hand, and with the
Interbank or other banks, on the other hand. They profit by
utilizing the bid-and-offer spread. The bid price is the
exchange rate that the buyer is willing to buy and the offer
price is the exchange rate at which the seller is willing to
sell. The difference is called the bid-offer spread. They also
make profits from speculating about whether the exchange rate
will rise or fall.
Central banks participate in the foreign exchange market in
their effective duty as banks for their particular government.
They trade currencies not for the intention of making profits
but rather to facilitate government monetary policies and to
help smoothen out the fluctuation of the value of their
economy's currency.
About the author:
Marquez Comelab is the author of the book: The Part-Time Currency
Trader . It is a guide for working men and women interested
in trading currencies in the forex market. See: http://marquezcomelab.com
and http://thefreedomtochoose.c
om for more.
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Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest / trade in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading.
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