Understanding The Forex Markets

The Foreign Exchange Market is the worlds leading global financial market. Commonly referred to as the Forex markets, or FX markets, it facilitates the exchange of several trillion dollars worth of currencies per day.Recent estimates show the daily traded volume to be close to $4 trillion dollars per day. To put this into perspective, this equates to more than three times the combined value traded on all the words stock markets.

What Is Traded On The Forex market?

The simple answer is money, or more specifically different currencies.
Forex trading is the simultaneous buying of one currency and the selling of another with a view to profiting rom the difference.
In simple terms, if the currency bought appreciates against the currency sold when the deal is closed, the forex trader makes money. Conversely if the currency has depreciated during this time then the trader will lose money.
Foreign Currencies are bought and sold through a broker or dealer much like Stocks and Shares. However this form of trading differs in that you don't actually purchase a physical asset such as a share or coupon. Instead you are simply speculating on the differential in value of the two currencies quoted.
When trading foreign currencies you will notice that they are quoted against each other. The first currency is the base currency. This is in effect the currency that you buying. The second currency is the currency you are in effect selling. For example, you can exchange the British Pound for the US Dollar (GBP/USD) or the Euro for the US Dollar (EUR/USD).

Why are Currencies traded?

The exchange of currencies has long been practiced throughout history. Traditionally currencies have been exchanged between regions to facilitate trade, investment and regional movement.

Increasingly however, currencies are being used purely for speculation and investment purposes. The ability to trade on online has seen a huge growth in the number of retail investors who are drawn to this way of trading. You may for example, be reading this article as one of the many traditional equity investors who are now turning to Forex trading as part of their portfolio.

Retail Forex traders now make up an increasingly large portion of the market. Traders will speculate on currency movements in much the same way that a stock trader would speculate on future share price movements. Different trading strategies are employed with both very short term (Intraday) and long term (Strategic) movements speculated on in an attempt to profit.

Why the Forex markets are different

Unlike Stock Markets and Futures Exchanges, Forex markets are considered Inter bank or Over-The-Counter (OTC). Basically this means that it has no physical location or single universal exchange for transactions to take place. Instead the Forex markets operate through a series of electronic banking networks and brokers.

The International setup makes the Forex market unique and allows it to be traded 24 hours a day. This allows Forex traders to react to breaking news at any point of the day without having to wait for the market to open. There are three key market sessions; the European, US and Asian sessions. The exception to this is at weekends when the markets close. However, little market moving news tends to be released at this time.
The Forex market is regarded as having no 'inside information', a charge sometimes leveled at Stock markets. All news flow is released publicly at the same time, so the private forex trader has access to information at the same time as the major banks and brokers. This helps to level the playing field and means that movements in exchange rates are the result of actual monetary flows and outlooks on global economic conditions.

Who can trade Forex?

While the big players in the Forex markets tend to be Central and Commercial Banks (and increasingly Hedge Funds) the Forex markets are in fact open to anyone to trade.
An ever increasing number of retail brokers are offering low deposit accounts and sophisticated online trading platforms. This means that today, anyone with access to an internet connection and a small amount of starting capital can participate in the potential gains available from the Forex markets.

Which Currencies Are Traded?

While all international currencies are traded, the market is dominated by eight majors. There trading popularity is due to the strength and security offered by the underlying economies of the Banks that issue them.

Symbol	Country	Currency	Nickname
USD	United States	Dollar	Buck
EUR	Euro members	Euro	Fiber
JPY	Japan	Yen	Yen
GBP	Great Britain	Pound	Cable
CHF	Switzerland	Franc	Swissy
CAD	Canada	Dollar	Loonie
AUD	Australia	Dollar	Aussie
NZD	New Zealand	Dollar	Kiwi

The most popular currency pairs traded on the Forex market are the majors (EUR/USD, USD/JPY, GBP/USD, USD/CHF) and what are known as the commodity pairs (USD/CAD, AUD/USD, NZD/USD). The Commodity currencies are so called because of the economic underpinning of their economies on the production of raw materials such as oil, minerals and precious metals.
Other more exotic currencies are traded, but in much smaller amounts. Among these 'exotic' currencies are the Hong Kong Dollar (HKD), Polish Zloty (POL) and the South African Rand (ZAR).

From: http://www.forextechnicalchartist.com