The Forex Market Opportunity
The Foreign Currency Exchange (Forex) Market enables investors to make trades between major world currencies in order to make a profit. The Forex is the epitome of all trading markets since it is the least complicated and allows for trading 24 hours a day 5 days a week. It is hard to beat this combination when the goal is to develop a good system, stick to it and make a profit. The simplicity of the Forex Market as compared to the thousands of possible investments in other markets, combined with a person’s ability to trade nonstop almost every day of the week, makes the Forex an ever increasing and desirable trading partner.
Pharaohs to the Middle Ages
Foreign Exchange Markets have been alive and well since the Middle Ages. And even long before that, various currencies changed hands between regions and countries since money first originated during the time of the Pharaohs. It appears the Babylonians were the first to use paper bills and receipts which facilitated the exchange of currencies between third parties.
U.S. Centennial to World War I
Between 1876 and World War I, Foreign Exchange Markets were very stable. This stability was created because everyone was on the Gold Exchange Standard. Currencies were now supported by gold prices! Unfortunately, the gold standard had one major problem. When countries would become prosperous, thus allowing their imports to increase, their gold reserves would run down. These were the same gold reserves used to support the country’s currency. One thing led to another and before long the country would go through a recession. Then its products would look attractive to other countries and the gold would start coming back in to fill the coffers. There was just too much boom and bust under the gold exchange standard. Something had to change.
Great Depression to Early 1970’s
Shortly after World War I, in the 1930’s, Foreign Exchange Markets became overly speculative, increasing volatility tenfold. Things were out of control and something had to eventually change. From the early 30’s till the early 70’s the Forex Market went through many changes, which can still be seen today. In fact, it wasn’t until 1973 that the modern Forex Market as we know it today started.
In 1944, after World War II was over, the major governments across the world came together in Bretton Woods, New Hampshire to agree on a way to move forward with Foreign Currency Exchange so each country’s economy could maintain and renew itself in an orderly fashion on a regular basis. The Bretton Woods Accord was established to mesh currencies and the International Monetary Fund (IMF) in order to stabilize the world’s economies. The accord fixed the major world currencies against the Dollar at a rate of USD $35 for each ounce of gold. The accord was also established to keep the world currencies from fleeing across countries and to decrease the speculative end of the market.
Up until World War II, the Great British Pound (GBP) was the currency by which most all other currencies were measured. When the British fell victim to German Nazi counterfeiting during WW II, thus devaluing the Great British Pound, the U.S. Dollar became the standard by which other currencies were valued. In fact, the destruction to Europe during World War II allowed the U.S Dollar, which had become a failed currency during The Great Depression, to rise from the ashes and become the dominant world currency.
The Bretton Woods Accord didn’t last a long time, but it lasted until 1971, long enough to accomplish its mission, which was to re-establish monetary consistency and stability to post war Europe and Japan.
Our present-day Forex Market, as we know it, began in 1973 when currencies were allowed to become part of a free-floating system since none of the agreements or accords were then in force. In 1978, the free-floating arrangement was officially required of all major currencies. All major currencies move independently of one another in today’s world. They are no longer tied to a particular accord. This can lead to increased speculation with central banks occasionally intervening to get currencies back to desired levels. Basically, it is supply and demand for currencies that is the driving force today in the Forex Market.
If you are considering becoming involved in the first market ever established for profiting from currency fluctuations, you may want to consider the Forex Market. It is tried and true and was the first. It is also less complicated and has more liquidity than any other market. This is important when you are trying to develop a trading strategy for maximizing your profits.
Foreign Currency Exchange Trading
Forex trading, also known as FX trading, is another way you can make money in a trading environment. Everyone has heard of the New York Stock Exchange (NYSE) or the Chicago Mercantile Exchange (CME), each featuring either stock trading or options and futures trading. Forex Trading involves the buying and selling of currencies instead of stocks, bonds, options or futures. It is also different in that there is no physical floor or exchange area like there is in New York or Chicago where the above-mentioned exchanges are located. The Foreign Exchange Market (FOREX) can only be accessed by phone or by electronic network. The advantage of not having a central location, but instead having an electronic network, is that the Forex can operate 24 hours a day. In fact, it is open for trading all day and night during work days, roughly 5 days a week.
Since the Spot Forex Market is the largest financial market in the world, it is also the most liquid. This means it is easy to get in and out of a position whenever you want. The more liquid a market is, the easier it is to initiate and fulfill a transaction. Of course, the objective when trading in any market is to buy low and sell high. With Online Forex Trading, a person buys and sells the currencies of other nations. If one believes the U.S. Dollar will strengthen against the EURO, for instance, they can buy Dollars now and sell them later at a profit. Currencies are traded in currency pairs and each currency is represented by a 3-letter code. Therefore, a rate, which consists of a pair of currency codes, will end up being a 6-letter code. For instance, USD/GBP is considered a currency pair with each containing three letters for a total of 6 in a rate.
Your objective as a Forex trader is to make sure you can correctly identify the current trend in the currencies you are trading and to make sure you are buying a currency which is appreciating in value and selling a currency which is depreciating. Slightly different than stock trading, you will utilize special software programs which allow you to participate in online Forex trading. You can also participate in Forex trading education at many Forex Trading company websites, and some allow you to test your Forex trading strategy in a “practice mode” before you actually use your own money.
Forex or FX Currency trading can be an exciting alternative to the stock, bond, option or precious metals markets. To some it is a simpler way to trade and profit. To others it is a welcome break from disappointing corporate news that can drive a stock down dramatically in seconds. Whatever your reasons, Forex trading may be just the break you need from other investments you may be tiring of.
Understanding The Forex Market – https://www.mastersofmoney.com/understandingtheforexmarket/
Risk disclosure: *All investments involve risk. Before making any financial or investment decisions, we highly advise that you seek the advice of a properly licensed and trained investment professional.