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FOREX Explained


Online Forex trading has grown by gigantic proportions in recent years and it is now commonly traded online by millions of traders from all over the world. This trading community includes, private individuals, banks, currency traders and many diverse business organisations. Any single individual who has a computer and has access to the internet can start trading Forex 24/5.5 using their credit cards.

While the FOREIGN EXCHANGE (FOREX, FX) market is not a "market" in the traditional sense, it is in fact the nearest to a "perfect market" from an economics perspective. As there is in futures or stocks, Forex has no centralized location for trading. Trading occurs around the clock 24/5.5 over the telephone and on computer terminals at thousands of locations worldwide. Foreign Exchange is also the world's largest and deepest market.

Daily market turnover has skyrocketed from approximately 5 billion USD in 1977, to a staggering 2.5 trillion (and more) US dollars today. This is more than 100 times the daily turnover of the NASDAQ.

Most foreign exchange activity consists of the spot business between the US dollar and the six major currencies (Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar). The FOREX market is so large, and is hosting so many participants, that no single player, governments included, can directly control or make any significant influence over the direction of the market. That makes the FOREX market the most exciting market in the world. Central banks, commercial banks, international corporations, money managers, speculators, and private individuals - all involve in FOREX trading.

Foreign exchange (FOREX) is the trading of contracts of currency pair exchange rate. It is a NON-DELIVERY trade, which means that there is no physical transaction of currencies, but it is rather an agreement, or "contract" (FOREX DEAL), to trade specific volume of a pair of currencies at an agreed exchange rate. The magnitude of such FOREX trade is that, in order to make the deal, only a proportional amount is needed (the COLLATERAL, or the MARGIN). Thus, if the currency pair exchange rate has changed by some percentage, the value of the MARGIN invested would accordingly change, however - in a much higher proportion. In fact, the actual change onto the Forex trader's investment (the MARGIN they deposited), will be the nominal change occurred to the exchange rate, multiplied by the MARGIN ratio (the leverage).

For example: a FOREX DAY-TRADING deal has been made, for buying EUR100,000 against USD, on an exchange rate of 1.2500. The MARGIN required for this deal (offered by the FOREX Trading Platform) is of a ratio of around 1:100. Accordingly, the trader invests only USD100. After a few hours, the exchange rate went up to 1.2620. This is an increase of 0.96%, quite normal for the global Forex market. However, thanks to the MARGIN ratio, the trader's investment went up by 96% (since a leverage of 1:100 has been used)!! Remember: that happened in less than a day!

However it should be noted that the same could happen in the opposite direction, none the less should such be the case - the traders cannot lose more than their original MARGIN deposited. When the rate goes against the trader's favor, the deal closes automatically ("Stop-Loss") when the margin no longer currently covers thecontract's decrease in value.

Note that the Forex trader may choose any direction for his deal (for example: either to BUY-EUR or to SELL-EUR in a EUR-USD deal), and still do that with his account base currency (the currency with which he operates his trading account). Hence, he may still profit (in case he was right...) even when the EUR goes down.

The Forex market offers today FOREX trading not only in MAJORS (the leading world currencies) but also in many other currency pairs (including exotic, gold and silver, etc.).

For further information about how to trade FOREX and the advantages it offers, click on the links below to read more about this exciting opportunity.

Trade FOREX
FOREX Daily Outlook
FOREX Weekly Outlook
Become a FOREX Affiliate



 


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