What is Foreign exchange?
FOREX the foreign exchange market or money market or Foreign exchange is the market where money is traded for another. It is of the largest markets in the world.
Some of the participants in this market are basically seeking to exchange a foreign money for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of money traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Money traders try to take advantage of even small fluctuations in exchange rates.
In the foreign exchange market there is small or no 'inside information'. Exchange rate fluctuations are usually caused by actual financial flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news simultaneously.Currencies are traded against another. Each pair of currencies thus constitutes an individual product & is historicallyin the past noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the money in to which the cost of unit of XXX money is expressed. For example, EUR/USD is the cost of the euro expressed in US dollars, as in one euro = one.2045 dollar.
Unlike stocks & futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific money pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with Foreign exchange brokers, brokers with banks, & banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, than waiting for the market to open, as is the case with most other markets.
Like any market there is a bid/offer spread (difference between purchasing cost & selling cost). On major money crosses, the difference between the cost at which a market maker will sell ("ask", or "offer") to a wholesale customer & the cost at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only one or two pips. In the EUR/USD cost of one.4238 a pip would be the '8' at the finish. So the bid/ask quote of EUR/USD might be one.4238/1.4239.
Average every day international foreign exchange trading volume was $4.0 trillion in April 2010 according to the BIS triennial document.
Individual money speculators can work in the work of the day & trade in the evenings, taking advantage of the market's 24 hours long trading day.
This, of work, does not apply to retail customers. Most individual money speculators will trade using a broker which will usually have a spread marked up to say 3-20 pips (so in our example one.4237/1.4239 or one.423/1.425). The broker will give their clients often immense amounts of margin, thereby facilitating clients spending extra money on the bid/ask spread. The brokers are not regulated by the U.S. Securities & Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not usually charge margin interest, however since money trades must be settled in two days, they will "resettle" open positions (again collecting the bid/ask spread).
In the event you require to know more about how to start trading in Foreign exchange, , proceed to our Foreign exchange for dummies editorial.
FOREX the foreign exchange market or money market or Foreign exchange is the market where money is traded for another. It is of the largest markets in the world.
Some of the participants in this market are basically seeking to exchange a foreign money for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of money traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Money traders try to take advantage of even small fluctuations in exchange rates.
In the foreign exchange market there is small or no 'inside information'. Exchange rate fluctuations are usually caused by actual financial flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news simultaneously.Currencies are traded against another. Each pair of currencies thus constitutes an individual product & is historicallyin the past noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the money in to which the cost of unit of XXX money is expressed. For example, EUR/USD is the cost of the euro expressed in US dollars, as in one euro = one.2045 dollar.
Unlike stocks & futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific money pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with Foreign exchange brokers, brokers with banks, & banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, than waiting for the market to open, as is the case with most other markets.
Like any market there is a bid/offer spread (difference between purchasing cost & selling cost). On major money crosses, the difference between the cost at which a market maker will sell ("ask", or "offer") to a wholesale customer & the cost at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only one or two pips. In the EUR/USD cost of one.4238 a pip would be the '8' at the finish. So the bid/ask quote of EUR/USD might be one.4238/1.4239.
Average every day international foreign exchange trading volume was $4.0 trillion in April 2010 according to the BIS triennial document.
Individual money speculators can work in the work of the day & trade in the evenings, taking advantage of the market's 24 hours long trading day.
This, of work, does not apply to retail customers. Most individual money speculators will trade using a broker which will usually have a spread marked up to say 3-20 pips (so in our example one.4237/1.4239 or one.423/1.425). The broker will give their clients often immense amounts of margin, thereby facilitating clients spending extra money on the bid/ask spread. The brokers are not regulated by the U.S. Securities & Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not usually charge margin interest, however since money trades must be settled in two days, they will "resettle" open positions (again collecting the bid/ask spread).
In the event you require to know more about how to start trading in Foreign exchange, , proceed to our Foreign exchange for dummies editorial.
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