Introduction to the Forex Market
The currency market is the one of the largest and oldest financial markets in the world. It is often referred to as the foreign exchange market or FX market for short Forex trading is direct access trading of different types of foreign currencies. Recent technological advancements have made it possible for small traders to take advantage of the many benefits of forex trading just by using the various online trading platforms to trade.
Access to the Forex Interbank Market
The forex inter-bank market was not always available to small speculators due to the large minimum transaction size and strict financial requirements. Banks, major currency dealers and sometimes even very large speculator were the primary dealers. Today, foreign exchange market brokers are able to break down the larger sized inter-bank units, and offer small traders the opportunity to buy or sell any number of these smaller units. These brokers provide any size trader, including individual speculators or smaller companies, the option to trade at the same rates and price movements as the major players who once dominated the market.
Major Currency Pairs in Forex Trading
Currencies are always trading in pairs Euro/Dollar, Dollar/Yen, etc. Approximately 85 percent of all daily transactions involve trading of the major currencies. Four major currency pairs that are commonly used for investment purposes are: The Euro against US dollar, US dollar against Japanese yen, British pound against US dollar, and US dollar against Swiss franc. This is how they appear in the trading market: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. No dividends are paid on currencies.
If you speculate that one currency will appreciate against another, you may exchange the second currency for the first one. If you are correct you may eventually be able to make the opposite deal in that you may exchange this first currency back for that other and collect any profits from it.
How Forex Transactions Are Handled
Major Banks and Forex brokerage companies handle the transactions done on the Forex market. The FOREX is worldwideand active 24 hours a day, so when you are sleeping in the comfort of your bed, dealers in another country are trading currencies with their counterparts. Clients may place stop-loss orders and take-profit orders with brokers for overnight transactions.
