What Are Forex Markets?

FOREX Defined

FOREX is the acronym for the Foreign Exchange, where one country's currency is exchanged for that of another through a floating exchange rate system. It is the world's largest financial market, with an estimated daily average turnover of more than $1.5 trillion!

FOREX trading is not bound to any one trading floor, and is not a market in the traditional sense, but is done electronically, between a network of banks and other large financial institutions, continuously over a 24-hour period from Sunday afternoon to Friday afternoon.

Major FOREX Participants

Major foreign exchange participants include commercial and investment banks and central banks. Other participants include corporations, hedge funds and millions of traders worldwide. The top 7 banks which provide liquidity in this market include: Bank of America, Credit Suisse, First Boston, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, Dean Whiter, and UBS Warburg.

The Commonly Traded Currency Pairs

Forex Trading

Currencies are traded in pairs: for example, U.S. Dollar/ Japanese Yen or U.S. Dollar/Swiss Franc. Every position involves the buying of one currency and the selling of another. While there are scores of currency pairs to choose from, the following currency pairs due to their volume and liquidity in the market, they are called the 6 Majors:

(Each currency is listed by its name, symbol, and how it is paired with the dollar.)

Australian Dollar (AUD/USD)

British Pound (GBP/USD)

Canadian Dollar (USD/CAD)

Swiss Franc (USD /CHF)

Euro Dollar (EUR/USD)

Japanese Yen (USD/JPY)

Two Way Market

In FOREX market you may buy or sell currencies. The objective is to earn a profit from your position. You could make profits when the market was going up if you bought the market. You also could make profits when the market was going down if you sold the market.

Margin

The margin deposit is not a down payment on a purchase of equity, as many perceive margins to be in the stock markets. Rather, the margin is a performance bond, or good faith deposit, to ensure against trading losses. The margin requirement allows traders to hold a position much larger than the account value. It is decided by your brokerage firm.

Why Trade the FOREX?

There are many benefits in trading the FOREX. A few of them are:

Risks You Must Know

The FOREX market is one of the most popular markets for speculation due to its enormous size, liquidity, and tendency for currencies to move in strong trends. An enticing aspect of trading currencies is a very high degree of leverage. Many brokerage firms allow positions to be leveraged up to 100:1 or 200:1. This speculation in the FOREX market is not for every one. It should only be conducted with risk capital funds that if lost will not significantly affect one's personal financial well being.