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WHAT IS FOREX
Foreign Exchange is the exchange of one nation's currency for that of another. It is also the largest and most liquid financial market in the world, with a daily turnover of over US $1.5 trillion. In comparison, the New York Stock Exchange daily volume is only US $30 billion. Retail currency trading-by individuals and organizations attempting to profit from constantly changing currency prices-accounts for up to a quarter of Forex volume. Other transactions include currency swaps by major corporations and central banks to convert profits or hedge against currency price movements.
Retail Forex trading occurs over the counter, without a centralized exchange, allowing financial institutions, governments, and individuals to trade currencies 24 hours a day from anywhere in the world. In Retail Forex, the two currencies being traded (one against the others) are shown as pairs of conventional abbreviations, such as USDGBP for the U.S. Dollar against the British Pound, or JPY/EUR for the Japanese Yen against the Euro.
Traders exchange currencies for many reasons, including liquidity, volatility, and availability. The most common and most liquid currencies are those of relatively stable countries with advanced economies such as the G7. Currency pairs are always the instruments, as one currency is always exchanged for another. The idea behind Retail Forex trading is simple: to buy or sell a currency in a currency pair and hold that position until the price of that currency changes. The position is liquidated and if the price of the purchased currency increased more than the cost of the transaction, profit is taken.
Trading decisions are made based on both "Fundamental" and "Technical" analysis of the currency markets. Technical analysis is the use of mathematics to identify trends and predict movements in currency prices. Technical analysts use tools such as charts, trend lines, averages, and many others. Fundamental analysis attempts to understand currency price movements by examining the economy behind the currency as well as other information, such as economic and trade indicators, news and opinions. The most successful traders know how to use both techniques in concert. |
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