Some Basic Information On Forex - The Largest Trading Market In The World

Forex trading allows an investor to participate in profitable fluctuations of world

currencies choosing pairs of currencies and then measuring profit or loss by the fluctuations of one currency's market activity versus the other.

The Forex Trading Market emerged in 1978, but until 1995 it was only available to banks and large multinational corporations. Thanks in part to the proliferation of the Internet, however, Forex trading is now open to everyone, whether you're a multi-billion dollar bank or a stay at home Mum. The Forex Trading Market's growth has been unprecedented and continues to be unmatched by any other trading market.

Forex trading is decentralized, unlike traditional trading which brings buyers and sellers together in a central location. Forex is a market where worldwide traders conduct business via high-speed Internet with the Interbank Foreign Currency Exchange via Forex Clearinghouses. Forex is not only the fastest growing trading market, but also the most profitable trading marketplace in the world because it is the world's largest marketplace. The currency market as a whole accounts for over 1.2 trillion pounds of trading per day. To put this into perspective, the Forex market is 109 times greater than the London Stock Exchange where the average total daily value of both foreign and domestic stocks is only 10.7 billion pounds.

In addition to being the world's largest and most profitable market, The Foreign Currency Exchange Market is the world's most powerful and persistent trading market regardless of negative economic indicators. This is because currencies 'trend' better than every other market due to their macroeconomic nature. Unlike many commodities whose supply and demand fundamentals can literally change overnight, (such as the real estate bubble and even more abruptly on 9/11), currency fundamentals are much less random, and far more predictable.

This is well illustrated in the way that interest rates change gradually and in small increments. Another example of this fundamental predictability is the fact that we know what the most popular currencies are because the hierarchy hasn't changed.

Of the 1.2 trillion pounds day trading in Foreign Currency Exchange, 83% of spot foreign exchange activity and 95% of swap activity involves US Dollars. The Euro is the second most active currency at 37%. The Japanese Yen (24%) and the British Pound Sterling (10%) are ranked third and fourth. The Swiss Franc is 7%, and the Canadian and Australian Dollars account for 3%. This hierarchy has been in place for years, since the introduction of the Euro to financial markets in 1999.

Despite its high trading volume and its fundamental role in the world, the Forex Market is rarely in the media limelight because its method of trading transaction is less visible than the trading floor of a stock exchange. However, trading on the Foreign Currency Exchange Market is becoming more and more popular, as flocks of internet traders are attracted by the market's inherent profitability and risk manageability. Add to this the absence of geographic or temporal boundaries and the vibrantly active Forex market is open to anybody willing to start investing in the currency markets.

by: Sally Johnston

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