ForEx Resources

Forex Option Section

• Home
• Videos
• Podcasts
• Sitemap

Custom Search

Forex Option Article

This is a selection made from among articles on Forex Option. For a permanent link to this article, or to bookmark it for future reading, click here.

Introduction To FOREX

The Foreign Exchange Market, better known as FOREX, is a worldwide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day, and American stock markets exchange about $100 billion a day.

The Foreign Exchange Market was established in 1971 when fixed currency exchanges were abolished. Currencies became valued at 'floating' rates determined by supply and demand. The FOREX grew steadily throughout the 1970's, but with the technological advances of the 80's FOREX expanded from trading levels of $70 billion a day to the current level of $1.5 trillion.

Who Trades in FOREX?

The FOREX is made up of about 5,000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency. There is no centralized location of FOREX; major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt. All trading is done by telephone or Internet. Businesses use the market to buy and sell their products in other countries, but most of the activity on the FOREX is from currency traders who use it to generate profits from small movements in the market.

Even though there are many huge players in FOREX, it is accessible to the small investor thanks to recent changes in the regulations. Previously, there was a minimum transaction size and traders were required to meet strict financial requirements.

With the advent of Internet trading, regulations have been changed to allow large interbank units to be broken down into smaller lots. Each lot is worth about $100,000 and is accessible to the individual investor through 'leverage' loans extended for trading. Typically, lots can be controlled with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange.

Advantages to Trading in FOREX

Liquidity - Because of the size of the Foreign Exchange Market, investments are extremely liquid. International banks are continuously providing bid and ask offers and the high number of transactions each day ensures there is always a buyer or a seller for any currency.

Accessibility - The market is open 24 hours a day, 5 days a week. The market opens Monday morning Australian time and closes Friday afternoon New York time. Trades can be done on the Internet from your home or office.

Open Market - Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time--there can be no 'insider trading' in FOREX.

No Commission - Brokers earn money by setting a 'spread'--the difference between what a currency can be bought at and what it can be sold at.

How does it work?

Currencies are always traded in pairs: the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying another, so if an investor believes the euro will gain against the dollar, he will sell dollars and buy euros.

The potential for profit exists because there is always movement between currencies. Even small changes can result in substantial profits because of the large amount of money involved in each transaction. At the same time, it can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor, and a number of software tools exist to minimize loss.

About the Author

Ron King is a full-time researcher, writer, and web developer. Visit FOREX4U to learn more about this fascinating investment medium.

Copyright 2005 Ron King. This article may be reprinted if the resource box is left intact.

Leave A Comment!

Close Your Name Email Address Add Your URL Your Comments Enter Captcha Code Shown To Left

Show All CommentsHide Most Comments | Post Your CommentsHide Comment Form

Additional Sponsors

Other Forex Option Related Articles

Introduction To Forex
Forex Benefits Of Trading The Forex Market
Some Reasons Why You Should Trade Forex And Two Important Forex Concepts You Must Know
Forex Trading Online 7 Reasons Why You Should
Forex Trading System Mechanical Vs Discretionary Systems

Do you want to contribute to our site: Submit your articles - HERE

Forex Option News

IMPORTANT: Bing News RSS feed has moved!

Forex options hint yen is set to drop, report says

HONG KONG (MarketWatch) -- Trends in currency futures and options transactions suggest the Japanese yen /quotes/zigman/4868099/sampled USDJPY 0.0000% may be facing selling pressure in the near future, according to a Nikkei newspaper report Tuesday.

The Basics of Forex Currency Options?

Most investors understand limits vs. market orders, a good investor also knows terms like "moving average and pivot points and support and resistance. Many traders learn the basics and leave it there and start to trade the markets. Successful ...

Currency Brokers Supporting to Optimize Your Success

A Forex broker is a broker doing business in foreign exchange, in a similar way to housing broker company who deals in property and houses. Just simply, an Fx broker is an adviser who suggests you around the Forex market. On the other hand, the Currency ...

Forex - USD/JPY weekly outlook: January 29 - February 3

At the conclusion of the central bank’s policy setting meeting on Wednesday, Bernanke said that policy makers were “prepared to provide further monetary accommodation†and added that bond buying is “an option that’s certainl ...