What Is FOREX or FOREX MARKET? PART I

The Foreign Exchange market (also referred to as the Forex or

FX market) is the largest financial market in the world, with

over $1.5 trillion changing hands every day.

That is larger than all US equity and Treasury markets

combined!

Unlike other financial markets that operate at a centralized

location (i.e. stock exchange), the worldwide Forex market has

no central location. It is a global electronic network of

banks, financial institutions and individual traders, all

involved in the buying and selling of national currencies.

Another major feature of the Forex market is that it operates

24 hours a day, corresponding to the opening and closing of

financial centers in countries all across the world, starting

each day in Sydney, then Tokyo, London and New York. At any

time, in any location, there are buyers and sellers, making the

Forex market the most liquid market in the world.

Traditionally, access to the Forex market has been made

available only to banks and other large financial institutions.

With advances in technology over the years, however, the Forex

market is now available to everybody, from banks to money

managers to individual traders trading retail accounts. The

time to get involved in this exciting, global market has never

been better than now. Open an account and become an active

player in the largest market on the planet.

The Forex Market is very different than trading currencies on

the futures market, and a lot easier, than trading stocks or

commodities.

Whether you are aware of it or not, you already play a role in

the Forex market. The simple fact that you have money in your

pocket makes you an investor in currency, particularly in the

US Dollar. By holding US Dollars, you have elected not to hold

the currencies of other nations. Your purchases of stocks,

bonds or other investments, along with money deposited in your

bank account, represent investments that rely heavily on the

integrity of the value of their denominated currency ¨the US

Dollar. Due to the changing value of the US Dollar and the

resulting fluctuations in exchange rates, your investments may

change in value, affecting your overall financial status. With

this in mind, it should be no surprise that many investors have

taken advantage of the fluctuation in Exchange Rates, using the

volatility of the Foreign Exchange market as a way to increase

their capital.

Example: suppose you had $1000 and bought Euros when the

exchange rate was 1.50 Euros to the dollar. You would then have

1500 Euros. If the value of Euros against the US dollar

increased then you would sell (exchange) your Euros for dollars

and have more dollars than you started with.

Example:

You might see the following:

EUR/USD last trade 1.5000 means

One Euro is worth $1.50 US dollars.

The first currency (in this example, the EURO) is referred to

as the base currency and the second (/USD) as the counter or

quote currency.

The FOREX plays a vital role in the world economy and there

will always be a tremendous need for the exchange of

currencies. International trade increases as technology and

communication increases. As long as there is international

trade, there will be a FOREX market. The FX market has to exist

so a country like Germany can sell products in the United States

and be able to receive Euros in exchange for US Dollar.

RISK WARNING:

Risks of currency trading

Margined currency trading is an extremely risky form of

investment and is only suitable for individuals and

institutions capable of handling the potential losses it

entails. An account with an broker allows you to trade foreign

currencies on a highly leveraged basis (up to about 400 times

your account equity).The funds in an account that is trading at

maximum leverage may be completely lost if the position(s) held

in the account experiences even a one percent swing in value.

Given the possibility of losing one's entire investment,

speculation in the foreign exchange market should only be

conducted with risk capital funds that, if lost, will not

significantly affect the investors financial well-being.