An Introduction to Forex Trading for Those Just Starting Out
The purchasing of one currency while simultaneously selling another is called FOREX TRADING. In simple terms, the currency sold is exchanged for the currency bought. Trading of currencies is typically done in pairs. Examples are the Euro to the US Dollar or the US Dollar to the Japanese Yen. The most liquid and biggest currency pairs comprise the bulk of the FOREX TRADING volume. Major currencies are the US Dollar, the Euro, the British Pound, the Japanese Yen, the Swiss Franc, the Australian Dollar, and the Canadian Dollar. These currencies are traded in huge volumes such that an average of 85% of daily FOREX TRADING is being done with these major currencies. FOREX TRADING came into being due to trade and investment between companies across different countries.
No matter how you choose to make money with your investments – whether it be with trading stocks, investing in stocks, or stock trading programs – you should know there are some benefits of choosing forex trading. Three major features of FOREX TRADING are huge trading volumes, decentralized system, and virtually uninterrupted trading hours. High profits are attained due to the huge volumes of trading foreign currencies. It is in fact the most traded fixed income market with its average daily turnover reaching US$3.2 trillion. Unlike the stock market, FOREX TRADING does not have a centralized exchange. Transactions are undertaken by participants thru the telephone and an electronic network. Lastly, FOREX TRADING happens practically 24 hours a day except weekends. The market typically opens at the start of the business day in Sydney, moving on to Tokyo, then London, then New York. Because of this, participants and investors are able to monitor and respond to market fluctuations day or night.
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Financial institutions of different levels participate in FOREX TRADING. These financial institutions include central banks, investment firms, commercial banks, remittance companies, and commercial companies. Trading done by investment firms and commercial banks are done either for their clients’ or their own accounts. FOREX TRADING by central banks are done in their respective economies’ interests. Central banks can use their vast forex reserves to stabilize the market or a currency. The flow of money from countries with a huge population of migrant workers to these workers’ home countries ensured the participation of remittance companies. Trading participation of commercial companies is comparatively lower as their FOREX TRADING is being done as a consequence of paying for goods or services. Retail traders or individuals may also participate in FOREX TRADING but is done through banks.
Just like in any market, strategies in maximizing profits from FOREX TRADING have been developed and employed by its participants. The candlestick charting strategy is one of the most common strategies. Candlestick charts were developed by a Japanese rice trader in the 18th century to predict market and price movements in the rice exchange at that time. Today, a candlestick chart is one indispensable tool for decision making in the stock, forex, and commodities markets.
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