September 4, 2009

The Currency Trading Market: What's In It For You

The currency trading market, also known as forex or FX (short for foreign exchange), is where the different world currencies are exchanged. So many different countries are involved that it does not have one trading floor but operates in financial centers all around the globe. This gives it many unique features that make it stand out from other forms of investment with certain advantages for the online trader. Let's look at some of those special characteristics and what they could mean for you.

Liquidity

There is just so much money in the forex market that you can always be practically sure of finding a trade. Daily transactions can amount to almost $4 trillion US dollars in value. This is partly because of the global nature of the market and partly because so many interests are involved.

The major players in the foreign exchange field are commercial and investment banks, corporations with investment funds, investment companies and brokers, non-bank currency change companies, and individuals who are known as retail traders. Most of these bodies are hoping to make money on their transactions but even if currencies had fixed exchange rates so that there was no room for speculation, there would still be a lot of money changing hands.

This is because nations, banks and companies involved in international trade always need to do business with other nationalities and to do that, money must always be exchanged from one currency to another. Besides that there are millions of individual travelers, both vacationers and business travelers, changing money for their personal use. So there is a very real market here.

Flexibility

The fact that the forex market operates all around the world means that it is a 24 hour market, five days per week. This has many advantages for the retail trader because it means that you can trade at a time convenient to you. The busiest times and probably best time to trade is during business hours in the UK and USA but that already gives you a 13 hour day and you are not necessarily limited to these hours. Asian and Australian business hours cover the rest of the 24.

You are not limited to trading in your own currency, either. Of course, whenever you trade on the currency exchange market there will be two currencies involved. When you trade stocks for example, you are exchanging stocks for money, but when you are trading forex you are exchanging one currency for another. So you are always dealing in what is called a currency pair.

Most traders begin with one of the major currency pairs which involve the US dollar, but you can trade cross pairs (two non-US currencies) if you wish. The other major currencies are the euro, British pound, Japanese yen, Swiss franc, and Canadian and Australian dollars.

Transparency

Finally, the forex market has the advantage of greater transparency than most other investment or trading markets. Unlike stocks, the value of currencies is affected by world and national events that are a matter of public knowledge. Besides this, the markets are so huge that it is difficult to manipulate them. This makes insider dealing much less of a problem than it is on the stock exchange. You will not have that sneaking suspicion that other traders have some hidden advantage over you in the currency trading market.

The Currency Trading Market: What's In It For You

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