What Is Forex Trading?

by Krantcents · 24 comments

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The foreign exchange (Forex) market is where currencies are traded.  It is no different than any other commodity.  It is the largest international market although there is no central market.  Why have a Forex market?  It is intended to facilitate international trade.  Although the U.S. dollar is the basis for a lot of trade, it is not the only currency.  In fact, the value of the U.S. dollar is based on other currencies.

Who trades foreign currencies?  It ranges from large banks, governments, currency speculators, institutional investors, international corporations and travelers.  I never thought I was a forex trader when I exchanged currency at the bank before I traveled to Europe.  Perhaps I contributed to the exchange of currency. The most traded currency is the U.S. dollar which makes up about 85% of all trades.

How are Forex rates determined?  Economic factors may be the biggest contributor to their value in exchange.  For example, our debt, credit rating and economic conditions strongly influence U.S. dollar value.  Political conditions such as stability of government and political structure.  Market psychology similar to the stock market is influenced by what people think about a particular currency.  Trading currencies is affected by a variety of things including electronic trading.

George Soros was famous for currency speculation during the early 1990s.  He sold short $10 billion in British pounds and earned more than a billion in profit.  He saw a weakness in the British pound and took advantage of the market and profited from his move.  His is probably the most famous currency speculator, but not the only one.  Currency speculation is the practice of engaging in risky financial transactions in an attempt to profit from short or medium term fluctuations in the market.

Speculators can artificially inflate vales or decrease values.  It can create an economic bubble and a lot of volatility.  Currency speculation involves buying, selling, and holding currencies to make a profit from favorable fluctuations in exchange rates.  If you are interested in trading foreign currency, you may benefit from the tools on Forex Loft.  Forex is the world’s biggest financial market and you can do very well if you know what you are doing.  Four trillion dollars is traded daily on markets that are open 24 hours a day 5 days a week worldwide.

Final thoughts

If you decide that you want to trade foreign currency, you need a broker.  Before you embark in foreign currency trading, understand that you lose money.  It is similar to buying stock, you think it will increase in value and it doesn’t.  Your trade will result in a loss.  Most traders win some and lose some!  This is a risky business and you should know a lot about it before you make a trade.

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