You have probably heard traders and economists talk about the Forex market many times.
Since the late 1990’s, Forex has become somewhat of a financial buzz word. But what does the acronym FOREX actually stand for?
It stands for foreign exchange market, and it refers to the largest investment market in the world. Today, well over $5 trillion dollars a day is traded on the currency exchange market.
So why is exchanging/trading currencies so popular? Why do more people want to trade on the currency exchange market than on markets for commodities and equity?
Well, to give a simple answer: many of the people in the market for Foreign exchange aren’t investors. For instance, some of the biggest players in the money exchange market are multi-national corporations, who need to constantly swap currencies, so they can purchase inputs or finished products from producers in other countries.
They will often purchase other currencies to stabilize their own currency in relation to another.
For instance, if the US Treasury or the Federal Reserve System were to purchase Euros (and subsequently take them off the currency market), the value of the Euro would increase in relation to the dollar.
This would stimulate European demand for American imports while decreasing American demand for European imports.
While the above partly explains why the demand for exchanging money is so great, it does not do so completely.
One other reason why the demand for foreign exchange is so great is because it is the most liquid investment vehicle available. While selling stocks and bonds may take a while and may be dependent on market conditions, selling currencies is usually quite easy.
In fact, most online brokers allow you to trade with no slippage, which means that the second you click sell, you actually sell the currency you’re holding at the exact swap ratio listed on the trading platform.
This means that you don’t need to worry about getting stuck with a currency that is rapidly declining in value. Rather, you can sell quickly and get out at any moment.
One last factor that has perpetuated the growth of the money exchanging market is international bank holdings.
Not only do banks often exchange currencies for their business account holders when they make transactions, but they also sometimes offer to hold deposits in banks overseas or in different currencies.
This can prove to be quite advantageous for depositors. For instance, if the value of the dollar is climbing rapidly in relation to the yen, Japanese banks may start to put some deposits into dollars.
After the value of the dollar has appreciated significantly, depositors will be able to exchange the dollars for yen, getting back more yen per dollar than was initially deposited.
As you have read, money exchanging is a massive market, which influences the decisions of governments, businesses, banks, and individuals. Not only does Forex allow each of these players to make an extremely liquid investment, but it also makes foreign transactions easier.
It should be noted Forex trading involves substantial risk of loss and is not suitable for all investors.
Currency Forex Investments
If you total the amount of money involved in a day’s trading on the US stock and Treasury Bills markets, and then multiply it by 3, you’ll still have less than a third of the amount of money which exchanges hands on the currency Forex foreign exchange market.
But unlike the world’s other economic markets, currency Forex trading is not centralized. There is no Wall Street, with a historic exchange building. Forex trading exists only over telephone wires and Internet connections.
But exist it does, and it involves a global network of financial institutions, individuals, and banks all working around the clock and unhampered by international borders. Time and physical distance have no meaning in the currency Forex market.
At one time currency Forex trading was the domain of banks that held large amounts of money in various currencies so that they could participate in global investment and business opportunities. Individuals could participate in currency Forex trading only by going through their banks. But when exchange rates became unregulated the volume of currency Forex trading began to mushroom.
What Is Currency Forex Trading?
When either a private corporation or government wishes to either buy or sell products or services in another country, it has to engage in bartering its national currency against the currency of the country where it wishes to do business. There are also large numbers of investment firms who trade the currency Forex market as a more speculative part of their portfolios.
Individual investors can also trade foreign currency on the Forex market, provided that they have sufficient risk capital and are willing to do the homework necessary to understand the art of Forex trading.
Forex Currency Trading At Home
Many individuals are drawn to the currency Forex market because they see it as a lucrative business which can be run from the convenience of their homes. All that is required is a personal computer with an Internet connection and a workstation organized with to create a minimum of distractions. They see the currency Forex market as both inflation and deflation proof, and a way to make money regardless of the worldwide economic situation.
Investors make or lose money when trading the currency Forex market depending on the fluctuations of the currency exchange rates. All currencies are constantly appreciating or depreciating in value when compared to one another, and it is up to the individual investor to understand how conditions around the globe will increase of decrease currency values before risking his or her money trading those currencies.
“When you do the right things consistently, over a long enough period of time, you are positioning yourself to be in the right place, at the right time, when opportunity strikes.” Michael “MJ The Terrible” Johnson – Founder & Owner – Masters of Money, LLC.
Is There A Sure Fire System To Trade FOREX? – https://www.mastersofmoney.com/isthereasurefiresystemtotradeforex/
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.