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Introduction To Forex Trading There are many markets: markets for stocks,
futures, options and currencies. These are probably the most accessible
markets for everyday traders like you and I.People easily understand the
basics of trading shares, so I will occasionally use examples from that
market.If you do not know a lot about currency trading, allow me to
introduce it to you. It is what I trade and I believe that it is one of the
best markets to trade because of its efficiency. The transaction costs to
execute a trade are minimal and most brokers provide you with the tools and
data you need to make your trading decisions, they usually provide them for
free. The market is open 24 hours a day which allows you to design your
trading hours around your daily commitments. It is very volatile, which is
great for those people who are looking for day-trading opportunities.People
easily understand the basics of trading shares, so I will occasionally use
examples from that market.If you do not know a lot about currency trading,
allow me to introduce it to you. It is what I trade and I believe that it is
one of the best markets to trade because of its efficiency. The transaction
costs to execute a trade are minimal and most brokers provide you with the
tools and data you need to make your trading decisions, they usually provide
them for free. The market is open 24 hours a day which allows you to design
your trading hours around your daily commitments. It is very volatile, which
is great for those people who are looking for day-trading opportunities.It
is the most perfect market that exists because it has a large number of
buyers and sellers all selling the same products. There is a free flow of
information and there are little barriers to participate.The currency
exchange market is an over-the-counter (OTC) market which means that there
is not one specific location where buyers and sellers can actually meet to
exchange currencies. Instead, transactions are conducted by phone, fax,
e-mail or through the websites of brokers who specialize in currency
trading.The major dealing centres at the time of writing are: London , with
about 30% of the market, New York , with 20%, Tokyo , with 12%, Zurich ,
Frankfurt, Hong Kong and Singapore , with about 7% each, followed by Paris
and Sydney with 3% each. Because of the fact that these centres are all over
the world, foreign exchange traders can execute transactions 24 hours a day.
The market only closes on the weekends.THE MAIN ‘PLAYERS' IN THE FOREX
MARKETThe five broad categories of participants are: consumers, businesses,
investors, speculators, commercial banks, investment banks and central
banks.Consumers, including visitors of countries, tourists and immigrants,
do need to exchange currencies when they travel so that they can buy local
goods and services. These participants do not have the power to set prices.
They just buy and sell according to the prevailing exchange rate. They make
up a significant proportion of the volume being traded in the
market.Businesses that import and export goods and services need to exchange
currencies to receive or make payments for goods they may have bought or
services they may have rendered.Investors and speculators require currencies
to buy and sell investment instruments such as shares, bonds, bank deposits
or real estate.Large commercial and investment banks are the ‘price makers'.
They are the ones who buy and sell currencies at the bid-and-offer exchange
rates that they declare through their foreign exchange dealers.Commercial
banks deal with customers on one hand, and with the Interbank or other banks,
on the other hand. They profit by utilizing the bid-and-offer spread. The
bid price is the exchange rate that the buyer is willing to buy and the
offer price is the exchange rate at which the seller is willing to sell. The
difference is called the bid-offer spread. They also make profits from
speculating about whether the exchange rate will rise or fall.Central banks
participate in the foreign exchange market in their effective duty as banks
for their particular government. They trade currencies not for the intention
of making profits but rather to facilitate government monetary policies and
to help smoothen out the fluctuation of the value of their economy's
currency.WHAT CURRENCIES TO TRADE IN THE FOREX MARKETYou can trade any
country's currency by exchanging it to another country's currency, however
the list below are the ones that are the most popular and are usually made
available by most online brokers for you to trade. |
