Forex Market Background

The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market on the planet with a daily average turnover of approximately US$1.5 trillion. In comparison, the daily volume of the New York Stock Exchange is approximately US $30 billion per day.

Until recently, traders from major international commercial and investment banks have dominated the Forex market. Other market participants within the forex market range from large multinational corporations, global money managers, registered dealers, international money brokers, and private speculators.

There are two primary entities at work in the forex market at all times, hedgers and speculators. Hedgers are entities who seek to reduce their currency risk and speculators are those who buy/sell in the forex market with the goal of witnessing personal profit.

Forex Trading - How It Works

Forex trading is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen. In trading jargon, a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. A short position is one in which the trader sells a currency in anticipation that it will depreciate. In every open position, an investor is long in one currency and shorts the other. Forex traders express a position in terms of the first currency in the pair. For example, someone who has bought dollars and sold Euros (USD/EUR) at 100.04 is considered to be long US Dollars and short Yen.

The most 'liquid' currencies are those of countries with stable governments, respected central banks, and low inflation. Today, over 85% of all daily transactions involve trading of the major currencies such as the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

The forex market is considered an Over The Counter (OTC) or 'Interbank' market, due to the fact that transactions are conducted between two parties over the telephone or electronic network. Trading is not conducted on a centralized exchange floor or trading pits, such as the futures markets. A true 24-hour market, forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York.

Forex Trading - Top of Forex Trading Introduction Page

Factors Affecting the Forex (FX) Market

Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, political stability, and inflation. Furthermore, governments sometimes participate in the forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to reduce the price, or buying in order to raise the price. This is commonly refereed to as Central Bank intervention. However, the massive size of the forex market makes it impossible for any one entity to "control" the market for any length of time.

Forex Trading - Top of Forex Trading Introduction Page

Forex Market Analysis - Fundamental vs. Technical

Forex currency traders make decisions using both technical fundamental analysis. Technical traders use charts, trend lines, support and resistance levels, and various chart patterns to find trading opportunities. Individuals who utilize fundamental analysis to trade the forex market attempt to analyze various economic information such as government reports and central bank policy.

Forex Trading - Top of Forex Trading Introduction Page

Forex Trading Education - An Introduction to the FX Makrets

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Disclaimer: There is a risk of loss in trading commodity futures, forex, foreign exchange, and options.

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