Forex Trading

Trading on forex means speculating on the relative values of currencies. It involves the simultaneous purchase of one currency and the sale of another aiming to profit from fluctuations in the exchange rates.

The market is enormous - according to the latest assessment of the market the average daily turnover is of $5.1 trillion. Forex trading is described as an over-the-counter (OTC) market or that there are no central exchanges or clearing houses. Therefore, forex trading is a truly 24/7 market, with prices moving constantly and gapping is less likely to occur. The forex market is considered also as a principals-only market - investors will use a broker to buy or sell stocks. Forex trading firms are called dealers and assume risk to make the trade. One of the primary ways the brokers make money is on the bid-ask spread, and not by charging commissions.

Forex trading always involves two currencies. It is sometimes called a zero sum game for that. When one currency rises in value by definition, the currency on the other side of the cross necessarily loses value.

What is the Forex Market?

The primary purpose of the forex market is for large multinational companies to exchange one currency for another, for example, to purchase raw materials in another country, or to repatriate foreign earnings. However, this primary element makes up only about one-fifth of the market where the rest of it is speculative, with prices driven by the actions of investors betting on future movements.


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