What is Forex?

The Forex market, established in 1971, was created when floating exchange rates began to materialize. The forex market is not centralized, as in forex futures or stock markets. Trading is done through computers and phones in thousands of locations around the world.

The Forex market, which is the exchange of one currency to another, is the largest market in the world trading up to $ 2 trillion in a single day, to put this number in perspective, the New York Stock Exchange trades on average less than 28 billion. one day In dollar volume, the Forex market can trade in a week what the New York Stock Exchange deals in a year!

The largest exchange rate activity is the spot (that is, immediate) exchange rate between the US dollar and four other major currencies: British pound, Japanese yen, Eurodollar, and Swiss franc. These four currencies are bought and sold against the US dollar.

Until 1998, this was the exclusive market for banks and large institutions that traded currencies among themselves, making huge profits. I wonder why banks and insurance companies have the biggest buildings in the city center … currency trading.

In a recent Wall Street Journal article, Daimler Chrysler made a quarter more money trading currencies than selling cars. Think about it, if big companies are doing it, it’s definitely the trend to follow. Now, thanks to the Internet, it is possible for fund managers to engage in the same trade, at their own level … with low risk.

Forex overview

The global market has changed dramatically in recent years. New investment strategies are increasingly important to minimize risk, as well as to maintain a high portfolio return. Among the most rewarding markets open to traders is the forex market. Identifiable trading patterns, as well as comparatively low margin requirements, offer rewarding trading opportunities for many.

Unlike the world’s stock markets, currencies are traded without the limitations of a central physical exchange. Instead, transactions are made over the phone or online. With this transaction structure as its foundation, the forex market has become by far the largest market in the world. The average volume of foreign exchange exceeds $ 1.5 trillion per day. This high volume is advantageous from a business point of view because transactions can be executed quickly and with low transaction costs (i.e. a small bid / ask margin).

As a result, currency trading has long been recognized as a superior investment opportunity by major banks, multinational corporations, and other institutions. Today, this market is more available to the individual trader than ever.

Spot currencies are always traded as one currency relative to another. So a trader who believes that the dollar will rise relative to the euro would sell EURUSD. That is, sell euros and buy US dollars. Forex-Training.com has compiled the following guide to trading conventions:

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