Introduction To FOREX

The Foreign Exchange Market, better known as FOREX, is a worldwide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day, and American stock markets exchange about $100 billion a day.

The Foreign Exchange Market was established in 1971 when fixed currency exchanges were abolished. Currencies became valued at 'floating' rates determined by supply and demand. The FOREX grew steadily throughout the 1970's, but with the technological advances of the 80's FOREX expanded from trading levels of $70 billion a day to the current level of $1.5 trillion.

Who Trades in FOREX?

The FOREX is made up of about 5,000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency. There is no centralized location of FOREX; major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt. All trading is done by telephone or Internet. Businesses use the market to buy and sell their products in other countries, but most of the activity on the FOREX is from currency traders who use it to generate profits from small movements in the market.

Even though there are many huge players in FOREX, it is accessible to the small investor thanks to recent changes in the regulations. Previously, there was a minimum transaction size and traders were required to meet strict financial requirements.

With the advent of Internet trading, regulations have been changed to allow large interbank units to be broken down into smaller lots. Each lot is worth about $100,000 and is accessible to the individual investor through 'leverage' loans extended for trading. Typically, lots can be controlled with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange.

Advantages to Trading in FOREX

Liquidity - Because of the size of the Foreign Exchange Market, investments are extremely liquid. International banks are continuously providing bid and ask offers and the high number of transactions each day ensures there is always a buyer or a seller for any currency.

Accessibility - The market is open 24 hours a day, 5 days a week. The market opens Monday morning Australian time and closes Friday afternoon New York time. Trades can be done on the Internet from your home or office.

Open Market - Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time--there can be no 'insider trading' in FOREX.

No Commission - Brokers earn money by setting a 'spread'--the difference between what a currency can be bought at and what it can be sold at.

How does it work?

Currencies are always traded in pairs: the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying another, so if an investor believes the euro will gain against the dollar, he will sell dollars and buy euros.

The potential for profit exists because there is always movement between currencies. Even small changes can result in substantial profits because of the large amount of money involved in each transaction. At the same time, it can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor, and a number of software tools exist to minimize loss.

Ron King is a full-time researcher, writer, and web developer. Visit FOREX4U to learn more about this fascinating investment medium.

Copyright 2005 Ron King. This article may be reprinted if the resource box is left intact.

---

Ebooks, Scripts, Websites, and more...

Adsense websites

June 2005: Weather Forecasts for Weather Traders

If Johannes Kepler, the renowned 17th century astronomer and discoverer... Read More

Why have Investment Plans for the Stock Market

If you do not have an investment plan in the... Read More

Investing for Retirement - Not an All or Nothing Play

In 1519, Hernando Cortes, beached on the shores of unexplored... Read More

Do You Need A Financial Planner?

No matter how much money you make, it pays to... Read More

The Economys Greatest Depression Downturn Ever Is Now Just A Few Years Away

What really controls the economy? Forget interest rates, forget deficits,... Read More

Lessons in Transition

Q: What have been the most successful approaches to attracting... Read More

Art Investing for a Financial Future

When we think of investing we probably conjure images in... Read More

Franchise Investing, Franchise Opportunities and Franchising Renewals

Have you considered buying a franchise instead of trying to... Read More

The Difference Between Investing and Trading

Investing and Trading are not the same thing. The returns... Read More

Asset Allocation: Critical to Your Investment Success

Asset allocation is a critical component of investing success. Both... Read More

Copy Cat or How to Use a Successful Trading System

How many books have you read about successful traders? How... Read More

Stock Market Retirement Investment Plan

For a successful retirement investment plan to work in the... Read More

Trading Tips No 7: Developing a Casino Mentality for the Day Trader

I submit that the successful day trader would profit well... Read More

Looking For a Safe Investment? Try a Certificate of Deposit

If you are looking for a safe investment and you... Read More

Investigate Before You Invest

"Through wisdom is a house built. And by understanding it... Read More

Press Release Scams and Successes: Reading Between the Lines

Press releases are a means through which companies can keep... Read More

Bearish or Bullish?

If you are interested in stock investing and the stock... Read More

An Old Dividend Stock Investment Idea, for a New Generation

Death and taxes! The certainties of life! And then, of... Read More

Everybody Wants to Know How to Invest

Those unfamiliar with the process of making and managing investments... Read More

HYIPs Investments or Scams?

High Yield Investment Programs (HYIPs) appear at first to be... Read More

25 Ways to Find Companies to Buy

When you start your program to purchase your "ideal" company,... Read More

Foreign Investing - US Investors Still Missing Out?

Investors are still too slowly realizing what the academics have... Read More

Investing and the Fear of Regret and Greed

People tend to feel sorrow and grief after having made... Read More

Seven Investment Terms Everyone Should Know

For those who have never given their financial future a... Read More

Poll Names Coin Laundries Best Investment For 2005

According to Morton Pollack, CEO of PWS, The Laundry Company... Read More