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Trading in Foreign Exchange Market

Forex trading is the immediate trade of one currency and the selling of another. Currencies are traded through an agent or dealer and are traded in pairs. For example Euro (EUR), US dollar (USD), British pound (GBP) or Japanese Yen (JPY).

Here you are not buying anything physical; this type of trading is confused. Think of buying a currency as buying a share of a particular country. When you purchase say Japanese Yen, you are in effect buying a share in the Japanese financial system, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy. In common, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's financial system compared to the other countries financial system.

Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is measured an Over-the-Counter (OTC) or Interbank market, due to the fact that the entire market is run electronically within a network of banks continuously over a 24-hour period.

Until the late 1990's only the big guys could play this game. The first requirement was that you could trade only if you had about ten to fifty million bucks to start with Forex. Forex was initially intended to be used by bankers and large institutions and not by small guys. However because of the rise of the Internet, online Forex trading firms are now able to offer trading accounts to 'retail' traders. All you need to get started is a computer, a high-speed Internet connection, and the information.

The Most Common Currencies Traded in the Forex Market

The most popular currencies along with their symbols are shown below :

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

Forex currency symbols are always three letters where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency

Market size and liquidity

The foreign exchange market is exclusive because of the following reasons;

• Its trading volumes
• The tremendous liquidity of the market
• Its geographical dispersion
• Its long trading hours
• The variety of factors that affect exchange rates.
• The low limits of profit compared with other markets of fixed income but profits can be high due to very great trading volumes
• The use of leverage

Financial Planning
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