Basic Forex Trading

Forex is the biggest and most fluid market in the world, trading approximately $2 trillion every day. The Foreign exchange marketplace is a cash interbank/interdealer marketplace. In simplest terms, this means the currencies traded in the Foreign exchange market are traded directly between banks, foreign currency dealers and Forex traders. Nevertheless, trade flows are an important cause in the long-term direction of a currency's exchange rate.

The Forex marketplace is not a traditional "market" due to the fact that there is no centralized bank for Forex trading activity and, therefore, trades placed in the Foreign exchange market are considered over-the-counter (OTC). Foreign exchange trading between parties occurs through computer terminals, exchanges and over telephones at thousands of banks worldwide. Clients can trade through online Foreign exchange trading platforms and/or over the telephone directly with a Foreign exchange broker on our trading desk. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are bought and sold.

Until recently the Foreign exchange market has not been available to the small trader. The large-scale bare minimum foreign currency transaction sizes and financial contributions left this marketplace open only to banks, major foreign currency dealers and the occasional large-scale Foreign exchange speculator. Now, with the option to control large positions with a relatively small amount of capital (margin), the Forex market is now more fluid than ever and available to most investors.

Five major currencies dominate trading in the Foreign exchange marketplaces: the U.S. Dollar, Euro, Japanese Yen, Swiss Franc and British Pound. The foreign currencies are traded in pairs in the Forex spot market. For instance, buying the EUR/USD in the Foreign exchange spot marketplace simply means the purchaser is buying the Euro and selling the U.S. Dollar in anticipation of the Euro gaining value in comparison to the U.S. Dollar. Likewise, the seller of a EUR/USD contract would be selling the Euro against the U.S. Dollar.

Over the past twenty years, an escalation in international trade and foreign investment has made the economies of the world more interconnected. New opportunities for traders have been created with the dramatic economic growth of the Asian and Latin American economies. Today, supply and demand for a specific currency is the driving factor in determining exchange rates. Other factors such as routinely reported economic figures and unpredicted news reports, such as disasters or political instabilities, could also alter the desirability of holding a particular currency, thus determing international supply and demand for that currency.