The Foreign Exchange Market

The foreign exchange market is all about currencies exchanging hands which in turn determines the value of a currency. Going back in history shows that the modern foreign exchange market began in the 1970s. The daily forex trading turnover volume has been on the rise ever since.

Today it is the largest financial market in the world with a daily turnover of about $4 Trillion. It operates in a decentralized fashion with buyers and sellers from around the world participating in it throughout the week. For this reason it is sometimes referred to as 24*7 markets though it is closed on weekends. Among the top institutional currency traders in the world are Deutsche Bank, UBS AG, Barclays Capital and Citi Group.

From Currency Exchange to Currency Trading

The forex market was established as a means to enable international trade and investment. It allowed a Germany company to buy goods from the United States and vice versa. It predominantly involved currency exchange. However, today it has evolved into a large and robust speculating trading market. In fact currency trading has emerged as standalone industry with hedge funds and large financial institutions involved in speculative trading in 100s of millions and even billions every day. As a result the forex markets facilitates features such as carry trade, in which investors borrow low-yielding currencies and lend high-yielding currencies.

Forex Or Stocks

Retail forex trading on the internet is a more recent phenomenon. The easiet way to choose currency trading is to compare trading in the foreign exchange market to that in the stock market. It highlights the advantages of the forex over equity markets. Below are some of the key elements:

• Foreign exchange market liquidity: Its huge trading volume, leads to high liquidity levels that cannot be matched by any financial market
• Forex trading is global: 24*5 except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday. When the Tokyo market closes the London markets open.
• Currency trading requires low capital: The largest financial market available for individual traders, the currency markets allow accounts as low as $50, demo accounts to practice all within a market that is too big for manipulations.
• Higher leverage helps enhance profit margins
• Finding a trading opportunity in stocks is hard because there are 1000s of stocks while a forex trader has just 6 major currencies and 20 plus minor currencies to study.

Currency Trading Tips