Forex – Trading Currency
The foreign stock exchange, abbreviated to Forex, is a worldwide currency market on which foreign currencies are traded very much like stocks on the stock exchange. In essence, it’s the stage where one currency is traded for another in an effort of trading lower value currencies to higher value ones, thus making an investment. Anywhere you go in the world, you must exchange your current dollars for the currency of whatever country you find yourself in. If you trade US dollars for Euros, you’re given the US equivalent of those Euros at the current exchange rates. Sometimes it may be more, other times less.
Because of the constant currency fluctuation, there is currency risk involved. This is the risk that comes from exchanging one form of money for another. Even so, the foreign stock exchange is bigger than any other market, even the stock market, and it sees daily trades of $2,000 billion. Rather than there being a physical, central location where the currencies are trading, Forex takes place electronically. This is also known as over the counter (OTC). Over the counter transactions take place between all of the worldwide traders from computer networks, and investors can conveniently invest online from their homes as well as receive vital support from seasoned advisors and traders.
The foreign stock exchange sees massively large traders which include governments, central banks, currency speculators, retail investors, corporations, and other financial institutions. There is a daily monetary exchange rate known as foreign exchange fixing, and this is a daily rate set by each country’s national bank to better evaluate the currency’s behavior. This foreign exchange fixing rate is what is used by traders to indicate trends. Speculation alone can help stabilize a currency, and as much as 90% of the transactions are purely speculative. This means that the person or corporation trading the currency will not accept it when all is said and done, but is only speculating as to how the currency will act.
With such a bombardment of information, and so much more than sends an individual down the never-ending rabbit hole, the foreign exchange is quite discouraging for new investors. Because of this, tutorials are highly recommended before making that first currency trade. It’s also easier to start out trading major currency pairs that include the euro and US dollar, the British pound and the US dollar, or the Japanese yen and the US dollar.