For those used
to buying and selling stocks and bonds the world of currency trading can seem
like a strange and dangerous place. But with a little bit of knowledge and some
good old fashioned common sense ordinary investors can learn to benefit greatly
from even the tiniest changes in the values of currencies around the world.
The key is to understand what Forex trading is and why it can be such a
powerful tool for both traders and long term investors.
What is Forex?
If you have an interest in currency trading you probably have come across the
term Forex. This term is shorthand for the Foreign Exchange market. This
exchange is the largest financial market on the planet, with an average daily
turnover of more than one trillion U.S. dollars.
Forex trading involves the buying of one currency and the simultaneous selling
of another, resulting in a dynamic and very active market for world currencies.
The currencies trade at a floating exchange rate, with each exchange noted as a
pair, i.e. Euro/Dollar.
Where Is the Forex Market Headquartered?
Unlike many stock exchanges the Forex market does not have a central location.
This market is known as an interbank market, due to the participation of
investment banks, commercial banks and other financial institutions in the
trading. Forex transactions take place online or over the phone between two
counterparts interested in currency exchange.
Who Are Forex Traders?
Forex traders run the gamut in terms of both wealth and experience, from vast
networks of investment and commercial banks to individual traders and currency
speculators. The Forex network includes money managers, registered currency
dealers, institutional investors, money brokers, options traders and of course
all those individual investors.
