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How Does The Average Joe Start Off Trading FX?
The Foreign Exchange market (often referred to as forex trading or the FX market) is the busiest financial market in the world, with well over $1.5 trillion changing hands every 24 hours.
This monumental sum of money is larger than all US equity and Treasury markets together!
Contrasted with other financial markets that function from a centralized position (a stock exchange, for instance), the worldwide Forex market has no central office location. It is a world-wide electronic network of banks, financial institutions and individual traders, all involved in the buying and selling foreign currencies.
Another chief feature of the FX is that it works 24 hours a day, corresponding to the opening and closing of financial centers in countries all across the globe, beginning every day in Sydney, then Tokyo, London and New York. At any time, in any location, there are buyers and sellers, making the Foreign Exchange market the most liquid market world-wide.
Customarily, access to the Forex market has been made available only to banks and other big financial institutions. With advances in technical know-how over the years, however, the Foreign Exchange markets are now available to everyone, from banks and financial institutions to money managers to individual traders trading retail accounts.
The Foreign Exchange market is very different than buying and selling foreign currencies on the futures market and a lot easier than trading commodities or stocks.
Whether you are understanding of it or not, you already play a role in the Foreign Exchange market. The innocent fact that you have money in your billfold makes you an investor in currency, particularly in the dollar. By holding Dollars (USD), you have elected not to hold the currencies of other countries. Your purchases of stocks, bonds or futures, along with funds deposited in your bank account, represent investments that lean heavily on the soundness of the worth of their denominated currency: for example, the dollar.
Due to the shifting value of the US dollar and the resulting fluctuations in exchange rates, your investments may change in value, affecting your general financial perspective. With this in mind, it should be no shock that many investors have taken advantage of the movement in Exchange Rates, using the volatility of the Foreign Exchange market as a way to increase their capital.
Example: suppose you had $1000 and bought Euro when the exchange rate was 1.50 Euros to the Dollar. You would then have 1500 Euros (EUR) . If the value of Euro against the Dollar increased then you would exchange (sell) your Euros (EUR) for Dollars and have more dollars (USD) than you started with.
For example you might see the following:
EUR/USD last trade 1.5000 means
One euro is worth $1.50 US dollars.
The first currency (in this example, the EUR) is called the base currency and the second, the dollar (/USD) as the counter or quote currency.
The Forex markets needs to exist so a country like Portugal can sell products in the United States and be able to receive Euros in exchange for dollars (USD).
The Forex market plays a vital role in the worldwide economy and there will always be a vital need for the buying and selling foreign currencies. International trade increases as technology and communication increases. As long as there is international trade, there will be a Foreign Exchange market.
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