Forex Trading Basics

What is the worlds largest financial market? Stocks? NO. Not even if you combine the entire world's equity markets together!!

The largest financial market in the world is the currency market - currencies exchange hands at a daily pace estimated in excess of USD$3 trillion a day!! About 30% of this business is done in London, the world's largest foreign exchange center.

The Foreign Currency Exchange Market (FOREX) is an international market place where trading takes place on the world's major currencies such as the United States Dollar, the Swiss Franc, the Euro, the Japanese Yen, and British Pound.

Principally the market exists to enable major financial institutions, businesses and governments to protect themselves from adverse fluctuations in currency values thereby enabling them to manage their risk in international trading. 

The bulk of the trading is between 300 large international banks which process transactions for large companies and governments and for their own accounts.

However, there is also the "speculator" segment in the Forex market. Speculator traders and investors who invest money to buy and sell foreign currencies to profit and take advantage from the constant price fluctuation of foreign currencies. Banks are the largest speculators in Forex - it is estimated that some banks generate up to 70% of their revenues from currency speculation!

Forex trading is not bound to any one floor
 but done electronically between a network
of banks continuously over a 24 hour
period. The word "market" is a slight misnomer in
describing Forex trading. There is no centralized
regulated location for trading activity ("pit") as there is
in stocks and futures and as a result there are
additional risks involved in trading currencies which
should be noted before venturing into this market.

The advent of the internet and commensurate
sophisticated software has opened a whole new
world for the small investor allowing him to trade this
profitable market place from the comfort of his
dwelling or office. All trades are calculated on
 this very sophisticated computer system and finally
executed through the system via a designated market
broker.

There has been an explosion of online investment
accounts as sophisticated private investors
realize the advantages of trading with Forex over the
Internet.