Foreign Exchange (FX) Market Overview
The Foreign Exchange (FX) Market, also referred to as the Forex or spot currency market, is the largest financial market in the world, with a daily average turnover of approximately 1.7 trillion US$. Until now, large multinational corporations, global money managers, registered dealers, international money brokers, and professional traders from major international investment and commercial banks have dominated the FX market.
The FX market is considered to be 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. The Forex market is a true 24 hour market. FX trading begins each day in Sydney, Australia, and continues around the globe, as the business day begins in each financial center (Tokyo, London, Frankfurt, and New York). Investors can therefore respond to economic and geopolitical events around the clock.
The most often traded or "liquid" currencies are those of countries with stable governments, disciplined central banks, low inflation, and free market fiscal and monetary policies. Over 80% of daily transactions involve trading of the major currencies, including the US Dollar, Japanese Yen, Euro, Swiss Franc, British Pound, Canadian Dollar, and Australian Dollar.
There are three main reasons to participate in the FX markets:
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To facilitate an actual transaction, whereby international corporations convert profits made in foreign currencies into their own domestic currency.
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Multinational corporations hedging their unwanted exposure to future price movements in the currency market.
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The third and most active area is speculative trading. In fact, only about 5% of currency trading is actually done to facilitate a true commercial transaction.
Advantages of the FX market over Equities
The FX market offers several advantages over Equity markets:
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24 Hour Trading: Starts in Asia around 24:00 CET Sunday evening, an ends in the U.S on Friday at 23:00.
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More Liquidity*: Traders can almost always open or close positions at a fair market price. On the other hand, stock markets which can be affected by low volume resulting in widening spreads.
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Margin Requirements: You can receive leverage of up to 50:1 for FX transactions.
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No restrictions on short selling (no up tick rule): FX trading profitable in both rising and falling markets.
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FX price movements unrelated to the stock market
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Trade on the latest news: FX traders can respond to the latest worldwide news, since FX markets not affected by after hours earnings reports, analyst conference calls, or trading halts due to pending news.
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Only a few major currency swaps are traded as opposed to thousands of stocks.
* Under normal market condition.
Not affected by outside parties: The stock market is influenced by large corporations, money managers, and banks affecting pricing by buying or unloading huge blocks of stocks. Due to the size of the FX market, even governments and central banks have a hard time affecting exchange rates.
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SKYPE Address : FIRST.CAPITAL.FOREX
