the basics of forex trading

Understanding the basics of forex trading

Forex trading or currency trading refers to the simultaneous trading - that is, buying and selling - of two different currencies. It is done between two major financial institutions, central banks, retail currency traders or speculators, large international companies, government institutions, companies with overseas operations and the like.

Based on the amount of money to trade, the international forex trading market is the world's largest financial market. Everyday, forex trading market receives the average income of $ US 1 trillion - an amount far greater than the total income produced by all stock and bond markets in the world.

Features

Forex trading is a kind of over-the-counter trading - occurs directly between financial institutions and currency traders. Trading the markets can be interconnected, but there is no single unified market. Hence, there is not one also, or standard rate. Each rate or price depends on what is traded. However, retailers have traditionally been used almost similar rates.

Another feature of forex trading is that it operates 24 hours, so that you can trade any time of day. Also, there is no need for the exchange floor, it operates through a global electronic network where trading occurs by telephone and computer networks. This feature also prevents delays that consume a lot of time.

Forex trading market is also very competitive and very fluid. This allows the parties to engage low costs and better price.

Top Currency Traders and major trading currencies

The Wall Street Journal Europe said ten major currencies account for 73 percent of the total forex trading volume. Among them are Deutsche Bank, UBS, Citigroup, HSBC, Barclays, Merrill Lynch, JP Morgan Chase, Goldman Sachs, ABN Amro, and Morgan Stanley.

Among the currencies traded mostly U.S., Canadian and Australian dollars, euros, yen and Swiss franc.

A study conducted by the Bank for International Settlements, said most products traded EUR / USD, USD / JPY, and GBP / USD. The study noted that the steady growth despite the euro, forex trading market remains concentrated in dollars.

Law on Trade

Trade happens when you accept the offered price and when the dealer confirms. Exchange floor is no longer required, as mentioned earlier.

In each trade, two currencies are always involved and the currencies traded serves as the products traded. Each currency has a price expressed in another currency, such as € 1 is equivalent to 1.204 dollar. In the example mentioned, the euro trader buys and sells the Euro dollar. No additional costs to trade. No commissions and other fees as well.

Large multinational companies engage in forex trading, when they are bought from the sale of goods in other countries. However, this kind of forex trading include only a small part of the daily activities of the foreign exchange market. Most of the commercial activities are conducted by currency speculators who earn from changes in the value of a currency.

Key market players

BIS study shows that more than 50% of forex trading interbank transactions are transactions. Trading income of most commercial enterprises, and currency speculators have been deposited in the bank.

Central banks also play a big role in the forex trading market. These banks control the money supply, interest, inflation and the target rates in order to stabilize the forex trading market.