Forex trading – An Introduction

Forex trading is the global, decentralized, over-the-counter buying and selling, or trading, of currencies in the foreign exchange market (FX) or currency market. The forex is the largest market in the world and the average turnover exceeds one trillion US dollars every day. This daily volume of trading is continuously growing.

The forex trading market has no central exchange or physical location. Buyers and sellers include corporations, banks, private investors, governments, currency speculators and other financial institutions. Trading begins when the market opens in Sydney Australia (Sunday 5 pm EST) and runs continuously, 24 hours a days, until it closes in New York on Friday at 4 pm EST. The around-the-clock, world-wide activity and unmatched liquidity of this market make it ideal for active traders.

There are a variety of factors that can affect exchange rates. Fluctuations in a nation’s GDP, inflation and the importing and exporting of a country’s goods are some of the variables that contribute to each currency’s worth at any given time. Currently, one US dollar can buy 0.700383 euro, or inversely one euro will buy 1.42780 dollars. This is an extreme change from when the euro first debuted in 2000 and the ratio was 1 to 1, and stems from the economic downturn and the housing market crash the United States has recently experienced.

forex trading has been referred to as the perfect competition. This is where none of the participants have market power and every one is a “price taker”. This means that none of the people or groups who are trading in the foreign exchange market can influence the price of the currency it buys or sells.

Typically, the cost for a forex transaction is built into the price and is called the spread. The spread, or profit to the broker, is the difference between the selling and the buying price. Generally these costs are very low. Forex trading brokers allow traders to trade more money on the market than what is in the trader’s account using leverage. If a broker gives a trader 50:1, the trader can trade $50 on the market for every $1 that was in the account.