What Is Forex Trading

October 19th, 2008 by Ivan Tan

The Forex Market also called FX Market for short is the biggest market in the world today with a daily turnover exceeding 2.8 trillion dollars. In comparison to the total equity trades in the US, the FX market volume is estimated at 30 times more. Central Banks, Commercial Banks, institutes, hedge funds, corporations and private investors constitute its main traders. Out of the total volume of trading transactions taking place in the Forex Market, 70% is estimated to come from International Central and Commercial Banks.

The definition of a market goes as a place where buyers and sellers meet for trading in goods and services (commodities). In an FX market, the sole commodity traded is currencies of countries. Trading in currencies is actually the purchase of (say) Sterling Pounds by tendering Japanese Yen, or even buying Euros for US Dollars. The ratio between any given two currencies does not remain stagnant; but it is a continually moving ratio, and could go in either direction depending on many socio-economic factors.

A special feature you would notice displayed on dealers’ panels in currency trading by currency dealers, is the presence of two-sided quotes. A two-sided quote carries two quotes called “bid price” and “ask price”. The price you obtain when you sell the base currency is known as the bid price, whereas the price you quote to pay to purchase the base currency is known as the ask price.

You must buy and sell at different times if you are not to lose under a two-sided quote. You have to shell out the increased price more than its selling price. The higher price that you would be paying as a result comprise of an embedded hidden premium that may be considered as a commission fee since commission fees are not generally requested from you by currency dealers.

Despite the high popularity enjoyed worldwide by the Forex Market, it might surprise you to learn that only 30% of its traders make profits, whereas the the balance 70% lose in the foreign currency trading market. The profits earned by the 30% winners annually amount to millions of dollars; usually earned by working from their homes.

What is the secret behind the minority investors who win in the FX market while the greater majority loses? The investors who win are not mere gamblers and speculators who enter the FX market for fun or for thrills, but professionals or near professionals who devote a lot of their time and energy to find out all the relevant facts and information about the currencies they are dealing in. If you entertain any serious intentions of making big profits in the FX Market, do not enter it without being properly armed with all the information you need to back a winner. In FX marketing, there are no shortcuts, but you have to take a long drawn out road of hard work and studies of the international currency market at depth.