Hundreds of thousands of transactions are completed everyday in the foreign-exchange market, otherwise known as the forex market. This amounts to an average of $1.9 trillion per day in trading transactions. The forex market, the largest and most heavily-traded financial market in the world, is a market system that enables participants to trade one currency for another.
What Gives Currency Value?
Currency is a form of money that is generally accepted by a society to retain a certain value that can be exchanged between individuals, government entities and businesses. This currency is usually issued by a government or a central bank. Each country adopts either its own currency, a currency issued by an outside source or various different currencies in order to express the prices of goods and services throughout its economy. However, the value of a currency itself, can only be judged against some type of external reference, many times another currency.
Why Trade On the Forex Market?
Most individuals and institutions trade on the forex market in order to earn profits from margins created with the rising and falling of currency valuations against one another. However, there is a large portion of currency market participants who do not trade for speculative profits. Many of these will include those looking to hedge their business models with profit margins and costs that are significantly affected by the fluctuations in currency exchange valuations. Others may be using the currency exchange market to pay staff wages abroad. Some people exchange currencies in order to be able to spend money in foreign countries, for instance during a family vacation overseas.
Trading With Leverage
The forex market is one of the least volatile financial markets with price fluctuations of less than one percent per day. This is why many forex speculators utilize leverage to add to the value of their trades on potential market fluctuations. Trading on leverage means borrowing a specific amount of money required for investing in the foreign-exchange market. This enables a trader to control more capital than one has actually invested. Usually, in the forex market a broker acts as the lender.
Opportunities For Everday People In Forex
It used to be that only large financial institutions, banks and governments had access to trade in the forex market. However, now with technological innovations in computing anybody can speculate on the currency market and earn profits with just the press of a button or touch-screen. On the other hand, trading in the forex market comes with the risk of losing all of one’s invested money. Therefore, proper risk management is advisable for anybody looking to speculate in the currency exchange markets.
Le Bach Pham has been writing professionally after receiving his Bachelor’s of Art in English Literature from the University of California, San Diego in 2002. He now specializes in writing about legal, business and financial topics. Pham also earned a Paralegal Certificate from the University of San Diego and
has experience working in the legal field. He also has experience in writing business plans for clients from various fields, including banking, finance, retail, education, beauty and various other sectors.
How to Trade a Currency Fund written by Jarratt Davis