Forex Training

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Liquidity:In the FOREX market there is always a buyer and a seller! The FOREX absorbs trading volumes and per trade sizes which dwarfs the capacity of any other market. On the simplest level, liquidity is a powerful attraction to any investor as it suggests the freedom to open or close a position at will 24 hours a day.

Once purchased, many other high-return investments are difficult to sell at will. FOREX traders never have to worry about being “stuck” in a position due to lack of market interest. In the 1.5 trillion U.S. dollar per day market, major international banks a “bid” (buying) and “ask” (selling) price

Access: The FOREX is open 24 hours daily from about 6:00 P.M. Sunday to about 4:00 P.M. Friday. An individual trader can react to news when it breaks, rather than waiting for the opening bell of other markets when everyone else-has the same information. This allows traders to take positions before the news details are fully factored into the exchange rates. High liquidity and 24 hour trading permit market participants to take positions or exit regardless of the hour. There are FOREX dealers in every time zone, in every major market center (Tokyo, Hong Kong, Sydney, Paris, London, United States, etc.) willing to continually quote buy and sell prices.

Since no money is left on the market “table,” this is what is referred to as a “Zero Sum Game” or “Zero-Sum Gain.” Providing the trader picks the right side, money can always be made.

Two-Way Market: Currencies are traded in pairs, for example dollar/yen, or dollar/Swiss franc. Every position involves the selling of one currency and the buying of another. If a trader believes the Swiss franc will appreciate against the dollar, the trader can sell dollars and buy francs (“selling short!’).

If one holds the opposite belief, that trader can buy dollars and sell Swiss francs (“buying long”). The potential for profit exists because there is always movement in the exchange rates (prices).

FOREX trading permits profit taking from both rising and falling currency values in relation to the dollar. In every currency trading transaction, one of the sides of the pair is always gaining and the other side is losing.

Leverage: Trading on the FOREX is done in currency “lots.” Each lot is approximately 100,000 U.S. dollars worth of a foreign currency. To trade on the FOREX market, a “margin account” must be established with a currency broker. This is, in effect, a bank account into which profits may be deposited and losses may be deducted. These deposits and deductions are made instantly upon exiting a position.

Brokers have differing margin account regulations, with many requiring a $1,000 deposit to “day-trade” a currency lot. Day-trading is entering and exiting positions during the same trading day. For longer-term positions, many require a $2,000 per lot deposit. In comparison to trading in stocks and other markets, which may require a 50% margin account, FOREX speculators excellent leverage of 1% to 2% of the $100,000 lot value. The trader can control each lot for I to 2 cents on the dollar!

Execution Quality: Because the FOREX is so liquid, most trades can be executed at the current market price. In all fast moving markets, slippage is inevitable in all trading (stocks, commodities, etc.), but can be avoided with some currency broker’s software, which informs you of your exact entering price just prior to execution. You are given the option of avoiding or accepting the slippage. The huge FOREX market liquidity offers the ability for high quality execution.

Confirmations of trades are immediate and the Internet trader has only to print a copy of the computer screen for a written record of all trading activities. Many individuals feel these features of Internet trading make it safer that using the telephone to trade. Respected firms such as Charles Schwab, Quick & Reilly and T.D. Waterhouse offer Internet trading. They would not risk their reputations by offering Internet service if it were not reliable and safe. In the event of a temporary technical computer problem with the broker’s ordering system, the trader can telephone the broker 24 hours a day to immediately get in or out of a trade.

Internet brokers’ computer systems are protected by “firewalls” to keep account information from prying eyes. Account security is a broker’s highest concern. They have taken multiple steps to eliminate any risk associated with transacting on the Internet.

FREE 'DEMO' ACCOUNTS, NEWS, CHARTS AND ANALYSIS: Most Online Forex firms offer free 'Demo' accounts to practice trading, along with breaking Forex news and charting services. These are very valuable resources for traders who would like to hone their trading skills with 'virtual' money before opening a live trading account.

'MINI' TRADING: One might think that getting started as a currency trader would cost a lot of money. The fact is, it doesn't. Online Forex Firms now offer 'mini' trading accounts with a minimum account de osit of only $200-$500 with no commission trading. This makes Forex much more accessible to the average individual, without large, start-u capital.

There are three main types of players in the forex market: customers, banks and brokers.

Customers

Customers can further be divided into individuals, small business and larger corporate type businesses.

Corporate Businesses often need to make cross boarder transactions in order to trade their goods or services.

Many companies have to import or exports goods to different countries all around the world. Payment for these goods and services may be made and received in different currencies.

Many billions of dollars are exchanged daily to facilitate trade. The timing of those transactions can dramatically affect a company's balance sheet.

Although you may not think it, all of us play a part in today's FX world. Every time someone goes on holiday overseas he or she normally needs to purchase that country's currency and again change it back into his/her own currency once he/she returns. Unwittingly he or she is in fact trading forex.

He or she may also purchase goods and services whilst overseas and their credit card company has to convert those sales back into his base currency in order to charge him.

If you think of just how many tourists are traveling at any given time, then you can imagine just how much this can add up.

Banks

Under the heading bank we could also include the larger of the funds who are also deposit taking institutions. As a forex speculator you are actually taking the place of a bank for the duration of a trade, if you think about you are holding large amounts of foreign exchange just as a bank would.

Policies that are implemented by governments and central banks can play a major roll in the FX market. Central banks can play an important part in controlling the country's money supply to insure financial stability.

Large banks can literally trade billions of dollars daily. This can take the form of a service to their customers, trades executed on behalf of large clients or they themselves can speculate on the FX market.

Because of the size of some transactions banks may be unable to deal directly with other banks and will state the price they are prepared to accept for a currency or pay for a currency. This is called market making.

They will quote the buying or selling rates they are prepared to pay for pairs of currencies e.g. the Dollar to Japanese Yen or Pound to Dollar.

The market maker (in this case the bank) makes its profit from the difference between the buying and selling rate (spread).

Hedge Funds

As we know the FX market can be extremely liquid, which is why it can be desirable to trade. Hedge Funds have increasingly allocated portions of their portfolios to speculate on the FX market.

Another advantage for Hedge Funds is that they can utilize a much higher degree of leverage than would typically be found in the equity markets.

Brokers

The broker’s main function is to facilitate trade between two parties.

They normally have links to other brokers, banks and institutions and often become mini market makers themselves.

Because of the varied source of clients who use brokers it is quite common to find the best rates through a broker as opposed to a bank.

With a broker you can shop for the best rates in order to transact your business.

The broker makes his commission from either the difference between the buying and selling rate or as a flat fee per transaction

All of the three main groups will also speculate in the market, which is why the market has so much volume and liquidity.

Forex has no centralized market, unlike many other securities. There is no single centralized place for the trade of forex. Traders buy and sell forex via telephones and computers linked to brokers, bank and other traders around the world.

You will often hear the term INTERBANK discussed in forex terminology. This originally, as the name implies, was simply, banks and large institutions exchanging information about the current rate of exchange at which their clients or themselves were prepared to buy or sell a currency.

INTER meaning between and Bank meaning deposit-taking institutions - normally made up of banks, large institution, brokers or even the government.

The market has moved on to such a degree now that the term interbank now means anybody who is prepared to buy or sell a currency.

It could be two individuals or your local travel agent offering to exchange Euros for US Dollars. You will however find that most of the brokers and banks use centralized feeds to insure reliability of quote.

The quotes for Bid (buy) and Offer (sell) you see will most always be from the larger players in the market. London in the United Kingdom is the single largest center for the exchange of forex.

The main reasons that

London has a higher percentage of trade is that it has always been a financial center and also because of time zones.

The London market starts between 7am and 8am, which is the end of the trading day for Asia. Just as the Banks in London are beginning to open at 8am they can deal with other traders in Tokyo, Hong Kong or Singapore whose trading day is just coming to a close.

During the later part of the trading day in London, the U.S.A market opens up and so catches a healthy portion of that market as well.

Here is an interesting fact for you. Up until the 1930’s the British Pound used to be traded via telex machines run through cables, which led to the Pound being nicknamed ‘’cable’’. You can still often here the Pound called cable.

Also, until the Second World War the British Pound was the main reserve for most other countries. After the Second World War Britain’s economy was in tatters and the U.S. Dollar became the reserve of most countries.

This largely came about as a result of the 1944 Bretton Woods conference in New Hampshire, which established the foundation of the postwar global economy and the birth of the World Bank along with the International Monetary Fund.

The word FOREX is derived from Foreign Exchange and is the largest financial market in the world. Unlike many markets the Forex market is open 24 hours per day and has an estimated $1.2 Trillion in turnover every day.

The foreign exchange market is perhaps the most interesting of all market makes it almost impossible for any one person, institution or government to control.

Forex has come of age and is now one of the most exciting markets for traders to become involved in. Even though I have traded many markets I have always had a soft spot for forex. Perhaps it is because it was the first market that I learned to trade or it might be that it just seems so familiar to me. Whenever I look at a Forex chart, it’s like an old friend that just keeps getting bigger and bigger.

This tremendous turnover is more than the combined turnover of the New York and London Stock Exchange on any given day. This tends to lead to a very liquid market and is therefore a desirable market to trade.

The foreign exchange market allows customers, fund managers and banks to buy and sell foreign exchange on a global basis. The trade of goods, services, loans and speculation leads to a very active market.

With the introduction of the mini account, deals can be anything from a few thousand dollars to billions of dollars.

The thing about the forex market is that transactions need to happen. When I say that they need to happen - I mean that large institutions and governments need to conduct and exchange currencies on a global scale. They have virtually no choice. Companies raising money need to buy a stock. A government has no choice when it comes to forex.