The Basics of Forex Business

* FOREX=FOReign EXchange* You can trade 24 hours a day* The FOREX is larger than all other finincial markets COMBINEDThe Foreign Exchange (FOREX) market is a cash (or "spot") interbank marketestablished in 1971 when floating exchange rates begain to materialize. This market is the arena in which the currency of one country is exchanged for those of another and where settlements for international business are made.The FOREX is a group of approximately 4500 currency trading institutions, including international banks, government central banks and commercial companies. payments for export and imports flow through the Foreign Exchange Market, as well as payments for purchase and sales of assets. This is called the "consumer" foreign exhange market. There is also a "speculator" segment in the FOREX companies, which have large financial exposures to overseas economics participate in the FOREX to offset the risk of international investing.Historically, the FOREX interbrain market was not available for small speculators. With a previous minimum transaction size an often-stringent financial requirements, the small trader was excluded from participation in this market. but today market maker brokers are allowed to break down the large interbank units and offer small traders the opportunity to buy or sell any number of these smaller units (lots).Commercial banks play two roles in the FOREX market:1. They facilitate transactions between two parties, such as companies wishing to exchange currencies (consumers), and2. They speculate by buying and selling currencies. The banks take positions in certain currencies because they believe they will be worth more (if "buying long") or less (if "selling sort") in the future. It has been estimated that international banks genrate up to 70% of their reevenue from currency speculation. Other speculators include many of the worlds' most successful traders, such as George Soros.3. The third category of the FOREX include various countries' central banks, like the U.S. Federal Reserve. They participate in the FOREX to serve the financial interests of their country. When a central bank buys and sells its or a foreign currency the purpose is to stabilize their own currency's value.The FOREX is so large and si composed of so many participants, that no one player, even the government central banks, can control the market. In comparision to the daily trading volume average of the $300 billion in the U.S. Treasury Bond market and approximately $100 billion exchanged in the U.S. stock markets, the FOREX is huge and has grown in excess of $1.5 trillion daily.The word "market" is a slight misnomer in describing FOREX trading. There is no centralized location for trading activity ("pit") a there is in the currency features( and msny other) markets. Trading occurs over the phone and through the computer terminals at hiundereds of locations worldwide. The bulk of the trading is between approximately 300 large international banks, which process transactions for large companies, governments and for their own acounts. These banks are continually providing prices("bid" to buy and "ask" to sell) for each other and the broader market. The most recent quotation from one of these banks is concidered the market's current price for that currency. Various private data reporting services provide this "live" price information via the internet.There are numerous advantages for parties wishing to trade in the FOREX.They include:* Liquidity: In the FOREX market there is always a buyer and a seller! The FOREX absorbs tradign volumes ad per trade sizes which dwarfs the capacity of any other market. On the simplest level, liquidity is a powerful attraction to any invester as it suggests the freedom to open or close a position at will 24 hours a day. Once purchased, many other high-return investments are difficult to sell at will.FOREX traders never have to worry about being "suck" in a position due to lack of market interest. In the 1.5 trillion U.S. dollar per day market, major international banks a "bid" (buying) and "ask" (selling) price.* Access: The FOREX is open 24 hours daily from about 6:00 P.M. Sunday to about 4:00 P.M. Friday. An individual trader can react to news when it breaks, rather than waiting for the opening bell of other markets when everyone else-has the same information. This allows traders to take position before the nes details are fully factored into the exchange rates. High liquidity and 24 hour trading permit marked participants to take position or exit regardless of the hour. There are FOREX dealers in every time zone, United States, etc.) willing to continually quote by and sell precises. Since no money is left on the market "table" this is what is referred to as "ero Sum Game" or "Zero-Sum Gain". Providing the trader pics the right side money can always be made.* Two-way Markets: Currencies are traded in pairs, for example doller/yen, or dollar/swiss franc. Every position involves the selling of one currency and the buying of another. If a trader believes the Swiss franc will appreciate against the Dollar, the trader can sell dollars and buy francs("selling short!"). If one holds the opposite belief, that trader can buy dollars and sell Swiss francs("buying long"). The potential for profit exists because there is always movement in the exchange rates(Prices).* FOREX trading permits profit taking from both rising and falling currency values in relation to the dollar. In every currency trading transaction, one of the sides of the pair is always gaining and the other side losing.