What is the Forex Market

The forex market, also sometimes referred to as FX, foreign exchange market or foreign currency market, is the largest financial market in the world. It is vast, with an average daily turnover of almost $4 trillion. In fact, the forex market is bigger than all the world’s stock and bond markets combined, making it incredibly liquid. The forex market is also highly accessible, operating 24 hours a day except on weekends. Trading is from rom 5pm EST Sunday to 4pm EST Friday.

How does one trade forex? When investors or traders trade stocks or even futures, they do so on a regulated exchange like the NYSE or CME. Trades go through clearing houses so that the trades are guaranteed. There is also a governing body and any disputes on trades go through arbitration – giving you a semblance of order when trading these financial instruments. In the forex market, basically none of these characteristics exist, or if they do, they do so in a self governing manner, which works surprisingly well and is efficient. For beginners or those who are accustomed to trading stocks, the concept might take some time to get used to, but it shouldn’t hinder you from entering the world of forex as there is money to be made – and the manner in which traders regulate themselves is very effective. In fact one way to alleviate concern is by trading with one of the reputable US based FX dealers who are members of the National Futures Association or NFA. The NFA is an independent self-regulatory organization for the U.S. futures market. Members of the NFA agree to binding arbitration should any dispute arise – working in essence like arbitration within the stock market.

How are forex trades carried out? When trading stocks or futures, a broker is used. Whether talking to your broker or trading online, your broker acts as an agent in your stock transaction – taking your order to the NYSE (for example) and executing the trade per your instructions. For their services, the broker is paid a commission. In the foreign currency market, there are no commissions paid to brokers because there are no brokers – just dealers. The dealer takes on risk as they take the other side of your trade and also make no commission. In fact they make their money through the spread between the bid and ask.

These are the basics of forex trading. Besides having no geographical boundaries, it is also very accessible, highly liquid and can be extremely volatile at times. This is important to understand, as with any volatile market, large sums of money can be made and lost in a short period of time. With the right strategies and tools, you can make money from forex trading – why do you think that up to 90% of the daily volume in the largest financial market in the world is traded in speculation by large banks and hedge funds.

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