What is Forex?
The foreign exchange market is commonly known as the Forex market. Today the Forex market daily average is more than $1.5 trillion. By the year 2007, more than $8.0 trillion will be traded daily.
Why Invest in Forex?
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation. Forex is a unique opportunity to diversify investment portfolios.
Where does the Forex market operate?
The Forex market is an action-based, decentralized international forum that allows major world currencies to seek their true value. The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.
Who are the participants in the FX Market?
The Forex market is called an 'Interbank' market due to the fact that historically it has been dominated by banks, including central banks, commercial banks, and investment banks. However, the percentage of other market participants is rapidly growing, and now includes large multinational corporations, global money managers, registered dealers, international money brokers, futures and options traders, and private speculators.
What Are the Majors?
For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
What is the Pricing?
As with all financial products, FX quotes include a 'bid' and 'offer'. The 'bid' is the price at which a dealer is willing to buy (and clients can sell) the base currency for the counter currency. The 'ask' is the price at which dealers will sell (and clients can buy) the base currency for the counter currency.
What is the Leverage?
The Forex market offers high leverage, up to 200:1. Since this level of leverage enhances both profit opportunity and potential risk, a very disciplined approach to trading is required.
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