The Foreign Exchange Market - also known as online forex currency - is a global market for buying and selling currencies. It handles a huge magnitude of transactions 24 hours a day, 5 days a week. Daily exchanges are worth roughly $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages out $300 billion a day and American stock markets exchange almost $100 billion a day.
Even though there are many huge players in the online forex currency market, it is available to the small investor thanks to recent changes in the rules. In the past, there was a minimum transaction size and traders were asked to meet strict financial requirements. With the advent of Internet trading, rules have been changed to allow big interbank units to be broken down into more modest lots. Each lot is worth almost $100,000 and is available to the private investor through 'leverage' - loans extended for trading. Typically, lots can be bought with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange.
The Foreign Exchange Market was founded in 1971 with the abolishment of fixed currency exchanges. Global currencies became valued at 'floating' rates driven by supply and demand. The forex currency grew slowly throughout the 1970's, but with the technological improvements of the 80's forex currency grew from trading levels of $70 billion a day to the current level of $1.5 trillion.
The FOREX market is made up of almost 5000 trading establishments such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency exchange. There is no centralized location of FOREX - major trading centres are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt, and all trading is by phone or over the net. Businesses use the market to buy and sell goods in other countries, but a lot of the movement on the FOREX is from currency traders who use it to produce gainings from small movements in the market.
There are umteen benefits to trading in forex currency:
· Liquidity - Because of the size of the Foreign Exchange Market, investments are highly liquid. International banks are continuously providing bid and ask offers and the high amount of dealings each day means there is always a buyer or a seller for any currency.
· Accessibility - The market is open 24 hours a day, 5 days a week. The market starts Monday morning Australian time and closes Friday afternoon New York time. Trades can be done on the net from your home or office.
· Open Market - Currency variations are usually caused by changes in national economies. News almost these changes is available to everybody at the same time - there can be no 'insider trading' in forex currency.
· No commission - Brokers make profit by setting a 'spread' - the difference between what a currency can be bought at and what it can be sold at.
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