INTRODUCTION TO FOREX TRADING

Introduction

What is Forex?
The word FOREX is derived from the words FOREIGN EXCHANGE. The Forex
Market also referred to as the FX Market is the largest financial market in the
world with a daily average turnover of $1 trillion. This is larger than the daily
turnover of the stock market and bond market combined. Unlike other financial
markets in the world, the forex market has no physical location or central
exchange. It is an over the counter market where buyers and sellers including
banks, corporations, and private investors conduct business. It is a true 24
hours market which begins in Sydney, and moves around the globe as the
business day begins in each financial centre, first to Tokyo, London and New
York.
The huge number and diversity of players make it difficult for governments to
control the direction of the market. Traditionally the forex market was only
available to larger entities trading currencies for commercial and investment
purposes through banks. Now trading platforms allow smaller and retail
investors access to a similar level of liquidity as the major foreign exchange
banks, by offering a gateway to the primary (interbank market).
Forex Trading
Forex trading is the simultaneous buying and selling of currencies. Every
foreign exchange transaction, or forex trade, involves two currencies and one
exchange rate. The objective of currency trading is to exchange one currency
for the other in expectation that the market price or rate will change so that
the currency bought will increase in relative with the one sold. If a currency is
bought and the price appreciates in value, the currency must be sold back to
lock down the profit.
Over 95% of trading performed is for speculative purposes, which is to profit
from currency movements. The rest belong to hedge fund managers who
manage business exposures to various currencies and other businesses.