If you were wondering; forex trading is nothing more than direct access trading of different types of foreign currencies. In the past, however, currency trading was mostly limited to large banks and institutional traders; recent technological advances have meant that small traders can also take advantage of the many benefits of forex trading just by using the various online trading platforms to trade.
The world’s currencies are at a floating exchange rate and are always traded in Euro/Dollar, Dollar/Yen pairs, etc. About 85 percent of all daily transactions involve trading major currencies.
Four major currency pairs are commonly used for investment purposes. They are Euro versus US Dollar, US Dollar versus Japanese Yen, Pound Sterling versus US Dollar, and US Dollar versus Swiss Franc. Right now I will show you how they look in the trading market: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. As a note, you should know that no dividends are paid on currencies.
If you think one currency will appreciate against another, you can exchange that second currency for the first and you can stay in it. In case everything goes as planned, you may eventually be able to make the opposite trade, in that you can exchange this first currency for that other one and then collect profits from it.
Transactions on the FOREX market are carried out by brokers at major banks or FOREX brokerage firms. FOREX is a necessary part of the world market, so when you sleep in the comfort of your bed, brokers in Europe are trading currencies with their Japanese counterparts.
Therefore, it is reasonable for you to believe that the FOREX market is active 24 hours a day and the brokers in the major institutions are working 24/7 in three different shifts. Clients can place take-profit and stop-loss orders with brokers for overnight execution.
Price movements on the FOREX market are very smooth and without the gaps, you face almost every morning on the stock market. Daily turnover in the FOREX market is around $1.2 trillion, so a new investor can enter and exit positions without any problem.
The fact is that the FOREX market never stops, even on September 11, 2001, you could still get your hands on two-sided quotes in currencies. The money market is the largest and oldest financial market in the world. It is also called the foreign exchange market, FX market for short. It is the largest and most liquid market in the world and is traded primarily through the 24-hour interbank foreign exchange market.
When you compare them, you will see that the foreign exchange futures market is only one percent as large. Unlike the futures and stock markets, trading currencies is not centered on a stock exchange. Trading moves from the major banking centers in the US to Australia and New Zealand, to the Far East, to Europe, and finally back to the US, it is truly a full-circle trading game.
In the past, the interbank forex market was not available to small speculators because of the large minimum transactions and stringent financial requirements.
Banks, large currency traders, and sometimes even very large speculators were the main traders. Only they were able to take advantage of the fantastic liquidity of the foreign exchange market and the strong trending nature of many of the world’s major currency exchange rates.
Today, forex market brokers can break down the larger interbank units and offer smaller traders like you and me the opportunity to buy or sell any number of these smaller units. These brokers give any size trader, including individual speculators or smaller companies, the option to trade at the same rates and price movements as the big players that once dominated the market.