About Forex

Approximately 2 trillion dollars are traded daily in these markets. That is to say that the volume of trade done here is over 100 times as compared to that of the New York stock exchange. Retail traders about forex also form a part of this market; however, they generally contribute only through brokers or banks.

Trading in the foreign exchange was open only to large companies and government bodies at one point of time. Nevertheless, the same is now made available even to individual investors. The first forex firm emerged in 1927, in Stockholm. The foreign exchange market is not one large combined market. There are many places where such about forex markets exist. It is not just one particular market or place where the exchange is located. The computer plays a very vital role in trading in these markets. People use the internet to invest their money and trade in foreign exchange.

The major world exchange markets are:

1. American Stock Exchange

2. Sao Paulo Stock Exchange

3. Chicago Board of Trade

4. Chicago Board Options Exchange

5. Chicago Stock Exchange

6. Chicago Mercantile Exchange

7. London International Financial Futures and Options Exchange

8. London Stock Exchange

9. NASDAQ- It is the largest US electronic stock market

10. New York Mercantile Exchange

11. New York stock Exchange

12. la Bourse de Paris

13. Singapore Exchange

14. Stock Exchange of Thailand

15. Tokyo Stock Exchange

16. Toronto Stock Exchange

17. Philadelphia Stock Exchange

The chief partakers of the foreign exchange market are:

Central banks- They conduct the largest part of the transactions.

Commercial banks- They undertake trading on behalf of their clients. Banks are also eligible to operate utilizing their own assets.

Other exchange markets

Firms that undertake foreign trade dealings

Investment funds

Brokers and Individuals.

Following are some of the commonly used symbols in the Forex. There are symbols of other currencies as well but the ones given below are the commonly traded ones.

AUD - The Australian Dollar, CAD - The Canadian Dollar, CHF - The Swiss Franc, EUR - The Euro, GBP - The British Pound, JPY - The Japanese Yen, USD - The US Dollar.

In foreign exchange trading, about forex a currency has to always be weighed against another for a trade to take place. For e.g. USD/EURO, GBP/USD, AUD/CHF. In the examples given the currency on the left of the /, is known as the base currency and the one on the right of the / is the counter currency. Six currency pairs cater for 90% of the trading that takes place in a day. They are:

1. EUR/USD

2. JPY/USD

3. USD/CHF

4. AUD/USD

5. GBP/USD

6. USD/CAD

The currency traders get their return from buying and selling currencies as their value fluctuates. Fluctuation takes place due to the unpredictability in the global markets on a daily basis, the demand and supply of international business and stocks. The worth of one currency in terms of the other is known as the forex rate. The exchange rate

fluctuates more often than not due to real monetary flows and can also be a result of a potential of changes in monetary flows which is a result of changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, and other economic conditions. Currency types are classified into two: direct quotation [home currency-foreign currency] and indirect quotation [foreign currency-home currency].

According to a study in 2004, 53% of the trading takes place essentially between banks, 33% is done through a dealer and fund manager or other non-bank financial body and 14% between a dealer and non-financial company. There are various advantages of trading in the foreign exchange market.

1. The convenience it provides is the primary factor. One can sit at home and trade in the forex through the internet.

2. Since there are a large number of traders who participate from all around the world finding a buyer or seller as the case may be to complete ones trade would not be difficult job. This liquidity makes sure of the price stability in the market.

3. Due to the large inflow and outflow of cash the traders can take advantage of the volatility, which will help them in making money.

4. Many investment companies offer their investors free paper-trading account that would help them to practice .This provision would be given for about 2-3 months, which would actually help the investor as he/she can practice before actually venturing out into the market.

5. The large volume of trade takes place every single day. It is not possible for a lone investor to affect a change in the currency rates. The rates fluctuate liberally due to the market forces.

6. About forexis open 24 hrs a day except on weekends and traders all over the globe buy and sell various currencies

Generally, two kinds of analysis are done in the foreign exchange market as in the case of stock markets, i.e. the fundamental analysis and the technical analysis. This study helps while trading in the FOREX and will help in understanding the market better. The

fundamental analysis considers issues such as the political and financial scenario of a country, the tax policy, inflation rate etc. These features are important in influencing the currency rate of a country. On the other hand, the technical analysis takes in to account the pattern of the market and its behavior under similar circumstances in the past and presumes it will continue in the same manner in the future also under similar circumstances.

There are various advantages of trading in the foreign exchange market but one must always remember that there are high risks involved in such investments. Before investing in the foreign exchange market, one should understand the market well and weigh all the pros and cons of trading in the forex. Discipline and caution are two key words while

trading in the forex. One should ensure that one trades with a certain amount of self-regulation and prudence in the market.