Forex Trading: Do You Have It In You

Forex is short for Foreign Exchange, where money from one country is
exchanged for that of another or the simultaneous buying of one currency and
selling of another.

When one deals in forex trading the profit or loss, he incurs is the
increased or decreased value of an investment caused solely by currency
movements. For example, if an investor thought that the US dollar was weak,
he might purchase German Mark. The investor's, the real profit or loss could
then be in how the Mark moves against the US$.

Being the largest financial market in the world, the Forex market has a
volume of more than $1.5 trillion daily. Also the Forex market, unlike other
financial markets, has no permanent location, no central exchange and just
happens 'Over the Counter.' It operates through an electronic network of
large banks, central banks, currency speculators, multinational
corporations, governments and other financial markets and institutions.
Retail traders are individuals who are a small part of this market. They
participate indirectly through brokers or banks.

The foreign exchange market is unique because of its trading volume, the
extreme liquidity, the large number and variety of traders in the market,
its geographical dispersion, its long trading hours i.e. 24 hours a day and
a host of factors that affect exchange rates etc.

Currencies are traded against one another. Each pair of currencies are
traditionally noted as XXX/YYY, where YYY is the ISO 4217 international
three-letter code of the currency into which the price of one unit of XXX
currency is expressed. For example, EUR/USD is the price of the euro
expressed in US dollars, as in 1 euro = 1.2045 dollar.

73 % of the forex trading is done by 10 top international banks. These large
banks continually provide the market with both "bid or buy" and "ask or
sell" prices. The difference between the price at which a bank or broker
will sell and the price at which a broker will buy from a wholesale customer
is called the "spread". This spread is very less for actively traded pairs
of currencies, usually only 1-3 pips. One pip is the smallest unit of price
move used in forex trading. For example, if the currency pair EUR/USD is
currently trading at 1.4000 and then the exchange rate changes to 1.4010,
the pair did a 10 pips move. The pip is the smallest unit regardless of the
fractional representation of the currency exchange rate.
Thus, 1.3000 to 1.3010 is the same move in pips terms as 110.00 to 110.10
For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum
trading size for most deals is usually $1,000,000.

Whew! What a market!

About The Author: NamSing Then is a regular article contributor on many
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