Our World in View of Foreign Exchange

By: Rick Williamson

There is a exchange called the forex market or it is also called foreign exchange market which is the largest market in the world. It is one of the most liquid markets that trade close to a couple trillion dollars a day. It is approximately 30 times the size of the New York stock exchange and the Nasdaq stock exchange combined. The major players in this market are banks, foreign currency dealers and forex investors. Currency is traded directly between these groups. These groups may be hedging currency risk, diversifying or to to speculate.

There is no centralize location for this market. It is traded between parties by means of computer terminals, telephones and exchanges all over the world. The forex market is considered "over the counter" (OTC). Trades are executed through online trading platforms and with brokerages. The currency market has not been made available to the small investor until recently. The size of the transactions were to large for most small investors. The major currency dealers and large banks as well as the occasional forex investor were the only one's with the ability to handle the financial requirements. Today the ability to leverage large positions with a small amount of capital makes this market more liquid and more available to the small investor.

How this market works is this. There are 5 major currencies traded. The US dollar,the British pound, the Swiss franc,the Japanese yen and the European dollar. These currencies are always traded in pairs. An example may be purchasing EUR/USD, these crosses or pairs in the forex spot market means you are buying the european dollar and selling the american dollar hoping the european dollar goes up against the american dollar Likewise the seller of the EUR/USD would be selling the european dollar against the american dollar. This spot market is settled with in two business days. The percentage of US dollar trades is over 80%.

What determines moves in exchange rates? That is supply and demand. Other things that determine rates could be economic news, world disasters, unexpected news releases. All of these things can be factored in to determine movement in the market.

As international trade and foreign investment increases, many shrewd investors will take advantage of such increases to profit.

Many opportunities have arisen with major world event. It is wise to keep up with whats happening in the world so you also will profit in the foreign exchange market. Below are some resources you may find helpful.

Foreign Exchange
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