There’s the stock market, the underground market and the foreign exchange market or more popularly known as FOREX, which can also be called as currency trading or foreign currency trading. The FOREX is one of the largest financial markets in the world. It has an estimate of $1.5 trillion turn-overs daily. Operating 24 hours a day, the key players in the foreign currency trading are commercial banks, central banks, firms involved in foreign trade, investment funds, broker companies, retail investors and some private individuals.
These players can come from Asia, North America and Europe. These key players are those with large amounts of money, involved in cash businesses or in the trading of assets that can be sold and bought easily. Among the identified benefits of foreign currency trading is the speed and high liquidity of assets. Transactions are conducted in a matter of seconds. A trader can also open a position for any period of time he wants. There are no fees. And of course, there’s the promise of bigger profit.
Basically, FOREX trading involves trading of foreign currency and other similar products. The currency of one country is weighed against the currency of another. It is different from the stock market as it involves a transaction between two countries and the business takes place through a broker. Trading of foreign currencies take up almost 80% of the market activity. This ‘trading’ is purely speculative in nature; only 20% of the market activity is spent on actual exchange of currencies for the corporations and companies involved in the FOREX market.
Trading of currencies is done is pairs. You can buy Euros with Dollars, hoping that the Euro will increase its value. When the value of the Euro rises, you sell it, thus the profit. The commonly traded currencies are the US Dollar (USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBP), Canadian Dollar (CAD), Australian Dollar (AUD), and the Swiss Franc (CHF). Among the usually traded currency pairs are the, the Euro and US Dollar (EUR/USD), US Dollar and the Japanese Yen (USD/JPY), the British Pound and US Dollar (GBP/USD), and the US Dollar and Swiss franc (USD/CHF).
In retrospect, there is no actual product being sold or bought in the FOREX market. The ‘trading’ is just composed of computer entries on the value of one currency against another. In FOREX trading, the trader uses both fundamental and/or technical analysis. Small and medium players use technical analysis, of which the primary item for study is the price. Fundamental analysis involves a study of the situations in the country of the currency. This would include issues like political instability, rate of inflation and unemployment, tax policy and interest of the Central Bank.
FOREX vs. STOCK market
Currency trading has no central governing body. There are no clearing houses or panels that agree on trades of disputes. The FOREX market does not have any limits on the size of the position being sold or bought as long as the player has enough capital. Online FOREX trading has opened a new window of opportunity for market players and business bigwigs. It has evolved to become more interactive, convenient, and easy to the players, not to mention, one of the highest earning markets in the business world. With online FOREX trading, one can play more and earn more.