A basic overview of the mechanics of the foreign exchange marketplace
The goal of currency trading , is the same as in any market: buy low and sell high. In other words, buy an appreciating currency at one set price, and then sell a depreciating currency at a another fixed price, and then walk away with a profit.
Now, what is trading in this particular market, known as foreign exchange, or Forex, is the difference between exchange rates of two currencies , or currency pair. International banks and foreign governments from around the globe execute a multitude of different currency trades on the Forex market, so as to settle global business transactions between different countries using different currencies. This is a 24 hour a day marketplace, in which different world currencies are essentially traded in cash, and is called a spot market.
There is no central standardized trading center, as one finds , for example, on International stock exchanges from around the world. What does exists, however, is an international network of currency dealers, dealing in over the counter trades.
As world events change daily so do the prices of currencies , which are also constantly changing or floating. Each currency is assigned a three letter code, for example the code for the United States dollar is USD, The Japanese Yen is JPY , the British Pound Sterling is GBP, the Euro is EUR, and the Swiss Franc is CHF. It is important to note that currency rates are equal to ratios of currency units of different countries relative to one another. Each participant of the Forex market enters as either a buyer or seller. The buyers price is known as the BID and The sellers price is known as the ASK .The seller offers the currency for sale at a higher price, while the buyer bids for it at a lower price. Quotes on the Forex market are thus given in BID/ASK pairs. These ratios are on a publicized chart, whereby, the BUY is always profitable when the chart goes up, and the SELL is always profitable when the chart goes down.
Now, what is trading in this particular market, known as foreign exchange, or Forex, is the difference between exchange rates of two currencies , or currency pair. International banks and foreign governments from around the globe execute a multitude of different currency trades on the Forex market, so as to settle global business transactions between different countries using different currencies. This is a 24 hour a day marketplace, in which different world currencies are essentially traded in cash, and is called a spot market.
There is no central standardized trading center, as one finds , for example, on International stock exchanges from around the world. What does exists, however, is an international network of currency dealers, dealing in over the counter trades.
As world events change daily so do the prices of currencies , which are also constantly changing or floating. Each currency is assigned a three letter code, for example the code for the United States dollar is USD, The Japanese Yen is JPY , the British Pound Sterling is GBP, the Euro is EUR, and the Swiss Franc is CHF. It is important to note that currency rates are equal to ratios of currency units of different countries relative to one another. Each participant of the Forex market enters as either a buyer or seller. The buyers price is known as the BID and The sellers price is known as the ASK .The seller offers the currency for sale at a higher price, while the buyer bids for it at a lower price. Quotes on the Forex market are thus given in BID/ASK pairs. These ratios are on a publicized chart, whereby, the BUY is always profitable when the chart goes up, and the SELL is always profitable when the chart goes down.
The Forex market was once the domain of only large traders, investment banks, multi-national corporations and big time international money brokers. However, when the United States fell of the gold standard in 1971, savvy investors immediately saw a golden opportunity on which to capitalize.
Now the forex currency trading market covers a wide range of investors both small and large, eager to financially gain profit in this lucrative market. As more and more players enter this booming marketplace, it is more essential than ever to do your due diligence, and only deal with established, reputable brokers. Therefore, it is crucial to select a reputable broker through a forex directory, such as : Online Forex Brokerage, where you can determine if a broker offers the type of trading conditions that are what you as an individual trader need to maximize profit and minimize risk.
While profits are to be made, losses are also common place, so as the old saying goes, only invest what you can afford to lose, know the risks, and educate yourself on the game before you start to play. Understanding the dynamics of the game, and utilizing the correct computer network is paramount. The benefit of trading via an electronic communication network, commonly referred to as ECN, is that for a registered currency trader it offers basic transparency and also increased processing speed. The ECN will also list orders that do not match for all subscribers to view. Essentially, the buyer and seller always remain anonymous, whereby the execution order lists the ECN as the trading party, omitting both the buyer and the seller. The broker utilizes the leverage, and thus makes the commission. Maximum protection for the buyer, seller and broker alike.
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