The Business Of Foreign Money Exchange

Foreign money exchange is the name given to "direct access" foreign currency trading

. There is approximately $1.4 trillion volume of online foreign currency traded. It is almost 30 times larger than all of the futures markets combined and this is the reason for foreign money exchange market being the world's most liquid market.

The Majors

US Dollor is the major currency against which brokers trade the other currencies, the other four main currencies are euro (EUR), the Swiss franc (CHF), the Japanese yen (JPY) and the British pound sterling (GBP). Collectively, these five currencies are called The Majors in foreign money exchange market. In some cases, Australian dollar (AUD) is also included in the group of major currencies.

The currency terms in foreign money exchange

Foreign money is always exchanged in pairs. The first currency that you will exchange in the pair is referred as the base currency and the second currency as the counter or quote currency. Again, the counter or quote currency is referred as the numerator in the ratio slab and the base currency is would become the denominator.

Always remember that the value of denominator is always 1. In this way, the buyer will get to knows from the exchange rate that how much of the counter currency need to be paid to gain one unit of base currency. For a seller, the exchange rate will tell that how much is received in the counter or quote currency while selling a single unit of the base currency.

Risks involved

Foreign Money Exchange is a risky business. However there a number of ways to reduce the amount of risk involved, but there is no assurance that you will not suffer any loss. Settings like Stop Loss on deals help you minimize the risks.

There are five major ways in which private investors can trade in foreign currency directly or indirectly:

The spot market

Forwards and futures

Options

Contracts for difference

Spread betting

Online foreign currency trading has considerable advantages over other types of investments. It is fairly easy to get started and all you need is to open a foreign currency trading demo account with $50,000 showing as virtual capital.

by: Robert Scott

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