subject: Forex For Dummies [print this page] The FOREX market is named forexThe FOREX market is named forex. If you exchange dollars for EU bucks at you bank, your bank bundles your exchange with other transactions and trades them on the currency market. The idea is to get the most favorable rate of exchange. In this manner your bank intends to make a profit on your transaction. Forex exists to help global investments and trade. If you went to Europe with dollars, you could not spend them. World corporations have the same problem, so currency exchange exchanges the currency.
Unlike the stock markets, currency exchange doesn't have a specific location. It operates when world wide banks operate and is open twenty-four hours a day, from the opening of business in New Zealand on Monday, to the COB in Asia on Fri..
Traders on the forex market include central banking institutions, large banks, firms, governments and currency speculators. Small investors don't trade in the currency market, but actually trade thru derivatives called futures contracts. Futures contracts are not legal in all countries, especially rising countries. Futures contracts account for roughly 7% of the total trading volume.
The smaller backers don't trade in the particular currencies, they trade in derivatives, a bit like the commodities market. Small investors make up about 7% of the total trading volume.
The market is divided into tiers, with the ten traders who do the most trading in the top tier. These are the huge global banks. The margins here are very small and the rate between the bid and ask prices are available only to this elite group. This accounts for roughly 53% of the trade volume. The next tier of backers includes large hedge funds, investment banks and international companies.
Many of the transactions, about seventy percent, are of a hopeful nature. That is, they are done in the hopes of making a profit instead of an exchange for practical use. Average financiers can only gain access to this market thru a currency exchange broker. Until fairly recently, their were few restrictions on the practices of the brokers. There's an ongoing effort to crack down and eliminate brokers who take trades that are in contest with the best interests of their clients.
Forex is a high hopeful market. During times of market uncertainty, traders will jump to historically "safe" or stable currencies like the Swiss franc. This drives the rate of exchange up for the franc in comparison to other currencies.
The derivatives available to backers are like those offered by the commodities market, though perhaps with less risk, especially if you stick with major currencies like the yen, the GPB, the Euro Buck and the US buck. The futures contract is mostly held for three months, although spot contracts which are usually for two days are also available. The forward contract is less dodgy because no money is exchanged until a future date agreed on by the parties. You may get swap contracts where you exchange currencies for a mentioned period. The safest is the option contract that gives you the legal right to exchange currency at an agreed on date, but places you under no obligation to make the exchange.
The currency market is highly complicated and with far less regulation than the stock exchange, more subject to abuses. It's advantages are its liquidity and the indisputable fact that it trades twenty four hours per day. This is a fairly speculative investment and may be approached with caution by tiny investors. Before considering an investment in currency exchange, you'll need to study the market and the best investment methods.
