How Does The Average Joe Begin Trading FX?

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The Foreign Exchange markets (also known as Forex or the forex market) is the biggest financial market in the world, with over $1.5 trillion changing hands every day.

This monumental total of money is bigger than all US equity and Treasury markets combined!

In contrast with other financial markets that operate at a central location (a stock exchange, for example), the worldwide Forex market has no central location. It is a worldwide electronic system of banks, financial institutions and personal traders, all involved in the buying and selling foreign currencies.

Another major feature of the forex market is that it operates 24 hours a day, corresponding to the closing and opening of financial centers in countries all across the world, starting each and every day in Sydney, then Tokyo, London and New York. At any time, in any country, there are sellers and buyers, making the FX the most liquid market globally.

Traditionally, access to the FX markets have been made available only to banks and other big financial institutions. With advances in technology over the years, however, the FX is now available to anyboby, from financial institutions and banks to money managers to any traders trading retail accounts.

The FX is very different than buying and selling foreign currencies on the futures market and a lot easier than trading commodities and stocks.

Whether you are aware of it or not, you definitely play a role in the FX. The simple fact that you have money in your pocket makes you an investor in currency, particularly in the US dollar. By holding Dollars, you have chosen not to hold the currencies of other nations. Your purchases of stocks, bonds or options, along with money put in your bank account, represent investments that rely heavily on the integrity of the worth of their chosen currency: eg., the dollar (USD).

Due to the altering value of the dollar (USD) and the resulting fluctuations in exchange rates, your investments may shift in value, affecting your total financial status. With this in mind, it should be no surprise that many investors have taken advantage of the variability in Exchange Rates, using the variability of the Foreign Exchange market as a way to increase their capital.

Example: suppose you had $1000 and bought Euros when the exchange rate was 1.50 Euro to the US Dollar. You would then have 1500 Euro . If the value of Euros (EUR) against the Dollar (USD) increased then you would sell (exchange) your Euro for US Dollars and have more dollars than you began with.

For example you might see the following:

EUR/USD last trade 1.5000 means
One Euro is worth $1.50 US dollars.

The first currency (in this example, the euro (EUR)) is referred to as the base currency and the second, the USD as the counter or quote currency.

The Forex market must exist so a country like Portugal can sell products in the United States and be able to receive Euros in exchange for dollars.

The FX plays a vital role in the world-wide economy and there will always be a terrific need for the buying and selling foreign currencies. International trade increases as technology and communication increases. As long as there is international trade, there will be a Forex market.

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