Welcome to FOREXnoob!
In 1971, when floating exchange rates began to materialize, the foreign exchange (FOREX) market, a cash interbank market was established. This is where the currency of one country is exchanged for those of another and where international business settlements are made. The FOREX market grew to become so large, it is estimated that the daily trading volume average has exceeded US$2 trillion!
In the early days, the FOREX market was dominated by large international banks, huge companies, large funds, high net-worth individuals and so on but over the last decade or so, market maker brokers are allowed to break down the large interbank units and offer small traders the opportunity to buy or sell any number of these smaller units. Online forex trading has made it even easier for almost anyone who has the desire for greater returns and is fast gaining popularity as a solid diversification component in one’s financial portfolio.
Like many other investments, foreign currency trading carries a high level of risk and may not be suitable for all investors. In fact, you could lose all of your initial investment and may be liable for additional losses. Therefore, you need to understand the risks associated and learn more about FOREX/FX trading before jumping in to the deep end of the pool.
Why FOREX?
- 24-hour trading: Opens from 6PM Sunday to 4PM Friday. Traders benefit from the ability to respond to breaking news immediately, day and night.
- High liquidity: More than two trillion dollars are traded everyday in the FX market! The sheer volume of this market helps ensure price stability, as well as less gapping and price slippage.
- 2-way market: Currencies traded in pairs e.g. EUR/USD or USD/CHF where every position involves the selling of one currency and the buying of another. It’s also very easy to establish both short and long positions, thus potential for profit exist because there are always movements in the exchange rate.
- Narrower dealing spreads and increased leverage: Normal bid/ask spreads set by brokers are five pips or less, much tighter than a typical stock transaction. Firms can offer traders a 2% margin, compared to a 50% margin for equity markets.