Forex Profits
By Anthony Trister, Thu Dec 8th
The Market—What, When and Why?
Forex, FX and the market are some common abbreviations forthe Foreign Exchange market. Actually it is the largestfinancial market in the world, where money is sold and boughtfreely. In its present condition the market was launchedin the seventies, when free exchange rates were introduced, andonly the participants of the market determine the price of onecurrency against the other proceeding from demand and supply. Asfar as the freedom from any external control and freecompetition are concerned, the market is a perfect market.
With a daily turnover of over trillions of dollars, the ForeignExchange market conducts more than three times the aggregateamount volume of the United States Equity and Treasury marketscombined. The market is an over-the-counter market wherebuyers and sellers conduct foreign exchange business usingdifferent means of communication.
Unlike other financial markets, the market has no physicallocation or central exchange. Since the market lacks aphysical exchange, the market trades continuously on a 24-hourbasis, moving from one time zone to the next, across each of theworld’s major financial centers every day. Trillions of dollarsof foreign exchange activity takes place every day. From 1997 tothe end of 2000, daily trading volume surged approximatelyfrom US$5 billion to US$1.5 trillion and more (according tovarious recent studies it has touched $1.7 trillion per day anddwarfs all other markets for trading in size and volume). It isreally difficult, if not impossible; to determine an absolutelyexact number because trading is not centralized on an exchange.But one thing is for sure that the market continues togrow at a phenomenal rate.
Before the advent of Internet and ecommerce, only bigcorporations, multinational banks and wealthy individuals couldtrade currencies in the market through the use of theproprietary trading systems of banks. These systems required asmuch as US$1 million to open an account. Thanks to advancementsin online technology,
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today investors with only a few thousanddollars can have access to the market 24 hours a day andaround 5 ½ days of a week.
The market is a nonstop cash market where currencies ofnations are traded, typically via brokers called brokers.Foreign currencies are constantly and simultaneously bought andsold across local and global markets while traders increase ordecrease value of an investment upon currency movements. Foreignexchange market conditions can change at any time in response toreal-time events so it is also considered to be a highlyvolatile and fragile market too. Conditions of the marketnever remain the same they changes every second.
The foreign exchange market dwarfs the combined operations ofthe New York, London, and Tokyo futures and stock exchanges.According to its size and scope it is many times larger than allother markets. Stats shows that spot transactions and forwardoutright trading take place in the inter-bank market. 51%of the market is in spot transactions, followed by 32% incurrency swap transactions. Forward outright transactionsrepresent another 5% of this daily turnover, with options on‘interbank’ transactions making up another 8%. Thereforethe inter-bank market accounts for 96% of the global foreignexchange market, with the remaining 4% being divided among allthe global futures exchanges.
For traders, trading provides an alternative to stockmarket trading. While there are thousands of stocks to choosefrom, there are only a few major currencies to trade (theDollar, Yen, British Pound, Swiss Franc, and the Euro are themost popular). trading also provides a lot more leveragethan stock trading, and the minimum investment to get started isa lot lower. Add to that the ability to choose flexible tradinghours (forex trading goes on 24 hours a day) and you have thereason why so many stock traders have flocked to day tradecurrencies.
About the author:Anthony Trister is a currency trader and is an owner ofOneDayTrades which offers free, mechanical signals and anautomated trading program for those wanting to trade forex. Freeaccess available here: http://www.onedaytrades.com
