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Don’t Gasp, its a Trillion Dollar Speculative Market
Today, FOREX market is the largest money market in the world. It averages a daily
transaction record of more than 3 trillion dollars! The FOREX market volume is 8
times greater than the combined trading volume of all stock exchanges in the world.
Almost
95% of FOREX market trading is speculative in nature. It simply means that
traders buy and sell currencies for profit rather than any actual transaction for
exchanging goods and services. This is the most exciting aspect of FOREX market
as it’s simply offers itself as a place where buyers and sellers and speculate freely
on either side (market moving up or down) and make a profit. One can earn in seconds if timing and luck is on their side, however with anything speculative comes the
associated risks (please do read our risk disclosure for a better understanding
of the associated risks). In successful FOREX market trading applies the very basic
principles of making profit, which is you buy low and sell high. With the narrowest
spreads (the difference between the buy and sell price) and the lowest costs (generally
no commissions or fees) this objective becomes easiest to achieve in the Forex market.
The other 5% of FOREX market trades are done for actual transactions and exchange
of goods and services and international trade. Only a few decades ago this scenario
was reversed, which speaks volumes for the growth and evolution of the Forex Market
The Market that Never Sleeps
FOREX market is open for trading 24 hours a day 5-days a week. The word sleep is
practically alien in the FOREX market. The market is always on and you can transact
anytime from anywhere in the world (as long as you have phone line and/or an internet
connection). The FOREX market opens in Australia followed by Tokyo. When the Japanese
market ends, the European side takes over in London and the world FOREX market trading
ends in New York. However, when New York is about to close, Australia is ready to
begin and the cycle goes on. This pattern can give you enough lee way and flexibility
in terms of trading and market monitoring. Of course, you’re not super human to
follow the market 24 hours a day. Online FOREX brokers and online currency trading
firms are there to monitor the market for you. Additionally, FOREX Trading Software
provided by trading currency firms can safely transact for you even when you’re
sleeping.
The Major League Players (err… currencies)
The major currencies traded in FOREX market are the US dollar, the Euro, Japanese
Yen, the Great Britain Pounds Sterling, Australian dollar, Canadian dollar, and
the Swiss Franc. These national currencies are called the Majors because they
are relatively stable and are the most traded instruments in the FOREX market trading floors.
Other currencies can be traded also but the majority of transactions in the Spot
Currency Trading are done using the Major currencies.
When you trade in FOREX market you will see a bid price and a sell price. The bid
is the price where you can sell a currency (against another) or in other words,
where a market maker has placed a bid and is willing to buy it from you. The Ask
price on the other hand is where you can buy a currency (against another) and in
other words, a market maker's asking price where he is willing to buy from you The
difference you get between the bid and the ask price is called the spread. So, if
the bid price for USD/JPY is 107.91 and the ask price is 107.95 you will have a
spread of 0.04. This spread is generally what a market maker makes when dealing
with their clients. When FOREX market transactions run into hundred thousands or
even million dollars, this .04 spread could be enormous. This spread is miniscule
compared to spreads you find in the stock market, however the minimum size for FOREX
market transaction are generally a lot higher, normally 100,000 units and multiples
thereof. But with advent of retail market makers, smaller market participants can
also transact on these spreads at lower transaction sizes. Accounts that trade lower
transactions sizes are usually known as “Mini” accounts or “Flexi” accounts, or other
derivatives which imply change from the normal transaction size of 100,000 units.
Join the Big Players and Get Bigger Yourself
Today, FOREX Market players are not limited to large financial corporations, multinational
banks, and national governments. Even individuals like you could enter the FOREX
market and participate in worldwide currency trading phenomena. A smaller pocket
size will not necessarily bar you from entering the market and playing with the
big boys, as smaller FOREX market participant can enter through the “mini” accounts.
Additionally, leverage plays an important role in the FOREX market which allows
smaller accounts to transact on larger notional size. Leverage is a double edged
sword, which not only increases your propensity to gain but also your propensity
to lose. It is this leverage that increases the notional size of the market and
the profit and loss that is transferred between participants. FOREX market allows
the highest levels of leverage anywhere from 25:1 to all the way to 500:1 or even
greater in some instances. Be careful when using leverage and only use high leverage
for shorter periods of times.
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