Guide To Trading Forex - Understanding Forex
Posted: Friday, August 07, 2009
by Nigel Conrad
Follow this short Guide to Trading Forex as your first step to find out more about the intriguing and potentially rewarding world of Forex trading
When the currency of one country is traded against the currency of another it is termed Foreign Exchange or simply the more recognisable term of Forex. The guide to trading forex estimates that $1.9 trillion is the value of the daily transactions being carried out on the foreign exchange market making it by a long way the worlds largest financial market. Figures obtained by the Guide to Trading Forex indicate that this is equivalent to three times the amount of transactions being carried out in the US Equity and Treasury markets combined.
In times gone by, as a guide to trading forex, whenever a retail investor decided to trade on the foreigh exchange market, it tended to be for commercial or investment reasons which inevitably involved large amounts of foreign currency. However, in 1971, exchange rates were permitted to float freely.. As a result, trading volumes increased massively.However, today there are many individuals like importers and exporters or multinational corporations who pay for goods and services as well as disburse wages in foreign currencies.The Forex market is also used by specialists in international portfolio management as well as exchange speculators, day-traders and long term holders. You can also find hedge funds that try to hedge their exposure in various other markets so that the risk of currency movements that is inevitable in a Forex market can be reduced.
Some other significant consideration to be noted is that in the foreign exchange market, there is hardly any possibility of getting any inside information. All the foreign exchange rate variations are the result of the volume of money flowing through the marketas also any variation in assumptions about the worldwide macroeconomic conditions. Any information likely to have an effect on the market is usually released to the world at exactly the same time.
Typically in a foreign exchange market, foreign currencies are traded against one another. Two foreign currencies are considered to be a single product denoted as AAA/BBB. AAA is the internationally recognised ISO 4217 standard 3 letter code for a specific foreign currency. Similarly, BBB is the code for another foreign currency and AAA/BBB denotes the price of AAA in terms of BBB. As an example, EUR/USD is an indication of the price of the Euro compared to the US dollar. EUR/USD 1.2675 means that 1 Euro is 1.2675 US dollars.
The Forex exchange market differs from the stocks and futures exchange market in a number of ways. The foreign exchange market is actually an interbank and an across the counter market. What this means is that foreign currency pairs do not have fixed worldwide exchange rates. This is because of the 24/7 activity of the foreign currency market. In effect, individuals will be involved in foreign currency transactions with foreign exchange brokers who in turn will be involved in transactions with banks. Banks will transact with other banks and so ad infinitum.When one trading session ends somewhere in the world, another is just starting up. For example, when the Asian trading session ends, the European session starts and when the European session ends, the US session will be in full swing. This is important as it means that at all times, somewhere in the world all currencies are being traded. As a result, traders are in a position wher they can react immediately to any breaking news that may have an impact on the foreigh exchange market
Click here for the Guide To Trading Forex and find out more of what you need to know to getting successfully started in Forex Trading.
Nigel Conrad is author and webmaster of the Guide To Trading Forex website
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