Why Do Forex Trading?

Forex, or foreign exchange, trading is the buying of one nation’s currency by selling another’s. Forex trading didn’t exist much before the early 1970s, because that’s when currencies were no longer required to “measure up” to gold (“the gold standard”). In the 1980s forex trading became well-established as the Internet grew. London is known as the forex trading city of the world, largely because of its centralized location. In the United States, Chicago has the big forex market.
There are five major currencies in the forex market: US Dollar, Japanese Yen, British Pound, Euro and the Swiss Franc. Together, these make up over 70% of forex trades. For the last 10 years the forex market’s biggest even was the introduction of the Euro. Today the fantastic growth of two Asian countries, China and India, is the major happening.
Forex trading has gained popularity in recent years. For one thing, it has become the largest financial market in the world - turning over about $2.2 trillion each day. It is about ten times the size of the next largest financial market, the New York Stock Exchange. For another, it is also the fastest developing market in the world. This is somewhat due to globalization. Each country is losing control over their own currency’s exchange rates. This contributes to the overall liquidity of currency in global financial markets. And last, but not least, it’s easy to make a profit at - or at least limit - losses. Unlike other futures investments, you can’t lose more than you’ve put in.
Forex trades are not done through a centralized exchange, but rather are over-the-counter trades using broker-dealer relationships. This requires high-speed communications networks and trading systems to relay the financial market information as well as individual trades in real time. This is why common use of the Internet had to occur before smaller investors could be direct players themselves.
The foreign exchange currency market used to be available only to the largest of players, like banks and investment firms and they still make the greatest percentage of trades; around 80 percent. It is estimated that banks deposit about 30% of their money in the forex market and make 45% on it.
Recently, though, forex trading has evolved into a system that welcomes small investors as well as large. Most trades are done online today. Anyone with an Internet connection can invest in the forex market in real time. Most online accounts have great flexibility and filter options, allowing you to set up exit (or entrance) points based on price. When that point is reached, a sale will be executed on your behalf automatically. You needn’t be glued to the screen watching for your price.
Opening a forex trading account requires filling out a simple form and presenting your I.D. Once you have your online access, you usually also have access to tools provided by your broker. You can also buy separate tools such as signals, used to foretell a particular currency price change. Usually there is no commission paid on individual trades.
One of the great things about forex trading is that you can do it from home with your computer and Internet access and the tools provided by your online broker. You don’t NEED anything else. You could even become a professional forex trader and still never leave your computer room at home. But a friendly word of caution – just because you’ve had a few good trades over a couple months doesn’t mean you’re ready to go pro! That takes lots of education and experience.
Michael RussellYour Independent guide to Forex Trading
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