Foreign Currency Trading
- Details
- Category: Money Trade
Every business day, foreign currency transactions generate a volume $3 trillion (as of 2007). Eighty percent of the activity on the foreign currency exchange market (called Forex for short) derives from traders who try to anticipate the direction currency exchange rates will move. Guessing right can mean large profits, but Forex also carries a great deal of risk. Before someone starts to trade foreign currency, he should be thoroughly familiar with the basics.
Foreign currency trading is subject to minimal regulatory oversight. The Securities Exchange Commission (SEC) recommends that traders use brokers authorized by the National Futures Association (NFA), an industry self-regulating organization. Almost all Forex trading is carried out online using trading platform software (which brokers will provide). There are no central markets like there are for stock trading.
Forex trading runs 24 hours a day beginning with the opening of Australian markets at 11 p.m. GMT Sunday and ending when U.S. markets close at 11 p.m. GMT Friday. Currencies trade in pairs, each with a unique exchange rate. For example, EUR/USD = [rate] is standard notation for quoting the exchange rate between the euro and the U.S. dollar. Brokers use a pricing system of "bids" by buyers and "asks" by sellers. They mark up the bid/ask difference (the "spread") and keep this amount instead of charging commissions.
