Trading currencies has been attracting more and more retail investors in recent times. Foreign exchange or forex is an OTC (over the counter) market where anybody can get involved. All you need is an internet connection, a good system or the time to learn and develop your own system, and some money to invest.
You do not necessarily need very much money. Brokers now offer mini forex trading accounts and even micro forex trading accounts which you can open with just a couple hundred dollars. However, it is better to have a little more, even if you do not put it all into the account in the beginning. Forex trading is risky and if you only have a couple hundred dollars to spare, you probably should be doing something safer with it.
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Forex or FX trading is a way of making money from currency price movements. Forex traders buy and sell world currencies according to whether a currency seems likely to rise or fall.
Who Can Do FX Trading?
When you first hear about currency trading you might think that you need to know a lot about economics, politics or finance. You might think that all forex traders would be employed on Wall Street or other financial centers of the world. But this is not true at all.
In the past, it was certainly the case that the foreign exchange markets used to be almost entirely dominated by banks and investment companies. These days, however, all of that has changed. There are two main reasons for this.
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The foreign exchange market has many factors that make it unique. It has been described as the closest to pure competition that can exist, even though the international banks attempt to control and manipulate it. But what makes it so special, and why might you consider that you are more likely to be able to make money on the forex market than other forms of investment trading such as stock trading?
Trading Volume
The amount of money traded on the forex market daily is immense. The average daily turnover across the world is almost $4 trillion, according to a survey by the Bank For International Settlements in December 2007. The biggest trading center is London, followed by New York and Tokyo. However, the US dollar is the most traded currency.
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Forex pairs are always involved in currency trading. The pair is the two currencies involved in your trade. For example if you are exchanging US dollars for Swiss francs, the currency pair is USD/CHF.
Theoretically you could trade any two currencies of the world, but in practice most foreign exchange trading is limited to the currencies of the larger financial powers. This does not necessarily mean the biggest or most politically powerful countries. Switzerland for example is only a small country but is a major player in the financial markets because of the global importance of the Swiss banks.
There are 6 major forex pairs which between them account for 90% of the funds traded on the forex markets. These are:
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You will see advertisements for forex investment just about everywhere. In newspapers and magazines, on the TV, on the internet … it seems that everywhere you turn, you will meet with somebody telling you that this is a great way to make money. But what is forex? Is it really profitable, and is it safe?
Forex or foreign exchange trading is a way of making money by exchanging foreign currencies. The rates of exchange are constantly changing, so a sharp investor can make a lot of money by buying a currency that is about to rise, then selling it after the price has gone up. In this respect it is a little like trading on the stock exchange.
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