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Forex Currency Trading Is Bigger Than All Stock Markets
01/29/2009 - By Geoffrey Hadley
Nearly everyone is familiar with the stock market and buying and selling stocks to some degree.
Some of us are active investors or traders who live and breath the stock market, while many others simply have retirement funds socked away and maintain a detached interest in the market since these funds may not be available to them for a long while.
The Biggest Exchange On The Planet Is Always Open For Business
Regardless of our involvement level, many of us are not remotely familiar with the largest and most liquid financial market of them all – the foreign exchange markets, also known as the Forex - where the currencies of the world's nations are traded every weekday, 24 hours a day.
Due to global time differences the currency markets are always open. As Asian trading ends, trading in Europe begins, and as it nears an end, North American trading open then closes, as Asian trading begins anew.
And because of its tremendous size, the Forex is extremely liquid. That is, for every seller there's a buyer. This also means the bid and ask prices will be close to one another so trades are completed quickly. In fact, it's estimated that the Forex trades nearly 4 trillion dollars a day, more than all other stock exchanges combined.
Along with being much larger, another difference is that currencies are not traded at a physical location like you see at the New York stock exchange. Instead, trades are transacted over electronic networks (as the NASDAQ stock market is) or simply by telephone.
And unlike the New York Stock Exchange, a third of currency trades originate from London, England, but New York, Tokyo, Hong Kong, and Singapore are also central trading areas.
It Has The Biggest Players Bidding For Your Bucks
The many participants in the Forex range from regular traders and speculators to huge companies, banks, and even national governments who use it convert their foreign sales into their domestic currency.
While stock prices are generally influenced by factors such as a company’s business model and operational performance, currency prices generally react to changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits, surpluses, and other related macroeconomic conditions.
When trading currencies you'll see they are traded in “pairs”. For example, the U.S. dollar is often paired or traded against the Euro. Due to history and circumstances the U.S. dollar is stipulated as the “base currency” for valuing currencies.
And the most well-known currencies are called the majors because they comprise about 85% of the trades enacted 24 hour period. The majors include the Dollar, Euro, Japanese yen, British pound, Swiss Franc and Canadian Dollar and Australian Dollar.
Fast, Furious, And Fraught With Profits And Risk
Currencies on the Forex are traded using bid and ask prices, just like stocks are. But, because of it’s immense size and liquidity, they are quoted in “pips” or "percentage in point". This denotes the fourth decimal point out, 1/100th of 1% or .0001 - a very precise measure.
A tempting element when trading currencies is the ability to leverage your position, up to 200 times in some cases. So $1000 can control upwards of $200,000 which can translate to tremendous gains...or nearly immediate losses.
But, unlike with a stock account, there are no margin calls in Forex trading. If your account falls below required levels, all of your positions will be closed automatically. In other words, you'll never lose more money than you have in your account.
The Forex is a hugely popular market for trading currencies. And like the more familiar stock exchanges, there's opportunity to make consistent profits or rapidly lose your money. For this reason, be sure you've analyzed your trades well and consider some practice or "paper trading" to start with. Any reputable Forex brokerage will have this capability.
http://www.geoffreyhadley.com/
