The Beginners Guide To Forex Trading
The Forex market or the currency market is the largest market in the world both in terms of volume of transactions done and in terms of the value of transactions performed in the market each day. In fact the market is so huge that each day transactions amounting to sixty times the value of transaction happening on the NYSE, are recorded in the market. The world of forex brings with ample opportunities to invest your own money and generate returns that are exceptional in nature.
But before we take a look at these opportunities, we need to understand what really constitutes the forex market? In layman terms, the currency market is a market where buying and selling of currencies is done. It is an over the counter market where deals are negotiated directly between investors over the interbank network. On the currency market, currencies can be sold or bought in pairs. This is because you would always be paying in one currency to buy another currency; hence these two currencies become a part of the currency pair being traded in the market. For example you have the EUR/USD pair in which you can buy a EUR by spending or selling a USD.
Currency pairs are often quoted in a different manner than stocks. Unlike stocks, these have two prices associated with them. These are a ask price and a bid price. Also the difference between the ask price and the bid price is called the spread and usually represents the commission that is charged by the forex broker for providing his or her services to you. Let us take an example to illustrate this. Suppose a EUR/USD pair is quoted as 1.3607/1.3609, then it can be said that the pair can be bought for 1.3609 and can be sold for 1.3607 at the current price level. Also the difference between the bid and ask price is the spread which is 0.0002 USD (or 2 pips) in this case.
The currency market is not like the typical stock exchange. This is because it is over-the-counter and also because it is made up of an interconnection of sellers and buyers of currencies and nothing else. This means that there are no central exchanges or centralized transactions. All transactions are done between individuals via their representing banks or brokers established with conjunction with these banks. Thus the only way to gain access to the market is either through your bank or through a registered forex broker.
These days due to the advent of online forex brokers and institutions offering online forex transactions it has become quite easy for the common investor to make investments in the currency market. Access to the market for these small investors is provided by brokers by making use of specially designed online trading platforms that not only display information about the price movement of a particular currency pair in the market but also provide tools which can be used for the purpose of market analysis. So what is required these days to gain access to the forex market is a high speed internet connection, a computer system and a way to deposit and withdraw money from your trading account.