A Look At Forex MarketsForex markets, which are also known as currency markets, are the most active trading futures markets both in terms of volume and amount of money. With a daily volume of over $2 trillion, trading Forex is done mostly between central banks, commercial banks and large companies.
Forex markets are unique because then aren't traded at futures exchanges; they are traded directly between investors in such trading centers as London, New York and Tokyo. Some of the most popular forex markets available are:
- USD / JPY - US dollar to Japanese yen exchange rate
- CHF / USD - The Swiss franc to US dollar exchange rate
- AUD / USD - The Australian dollar to US dollar exchange rate
- CAD / USD - The Canadian dollar to US dollar exchange rate
- GBP / USD - The British pound to US dollar exchange rate
- EUR / GBP - The Euro to British pound exchange rate
- EUR / USD - The Euro to US dollar exchange rate
- EUR / CHF - The Euro to Swiss franc exchange rate
Day trading allows you to access the Forex markets using the same direct access brokerages that are used for other markets, except for one difference. Trades in Forex markets are not handled by an exchange; these transactions are made by a currency broker instead. Currency brokers are allowed to establish their own markets, which means that investors using one broker may not get the same prices that investors using another broker get. Unfortunately, some commodity brokers are less than honorable and will actually trade against the investors that use them, preventing them from getting the best prices available in the Forex markets.
Additionally, it is typical that currency brokers not take a commission on trades in the Forex market. They will, instead, charge a portion of the spread for their futures trading services.
Currency Market Info
Trading symbols for the Forex market are made by combining the abbreviations for the two currencies being traded. For example, the currency trading symbol for euros to British pounds would be EUR/GBP.
Each currency market has a price change that it considers the minimum for trading commodities ; this unit of measure is called a tick. Currency or Forex markets have a minimum tick size (typically 0.0001) as well as a minimum trading amount of approximately $25,000. In this instance, the minimum price movement would equate to tick size x minimum trading amount or 0.0001 x $25,000= $2.50. Due to leveraging, even though the minimum trading amount is $25,000, the investor will only have to have a portion of that in his or her trading account. This is why it is important to be wise with your investments; successful Forex traders know that it is possible to lose more than your original investment due to the leverage factor
If you go on vacation in a foreign country, you will quickly become aware that the buying and selling exchange rates are different. For example, if you take $100 to the bank and exchange it for Mexican pesos, then take the pesos you receive and exchange them again for dollars, you will wind up with less than your original $100. This is a direct result of the rate spreads and it is the same for commodity trading. While the rate spread at the bank may be several cents on the dollar, the difference in the Forex markets is usually only one tick.
Forex currency trading for beginners can seem very different from the stock market. Forex markets have different regulations and terminology but the same overall principles apply; perform your technical analysis, stick to your trading plan and use your Japanese Candlesticks to help you find the trends. Forex markets have their differences but they are very interesting and offer the possibility of excellent profits for savvy investor.