What is the forex market?

The forex or foreign exchange market is one of the most actively traded markets, even though it's not the most well known market. Amazingly, it is the largest financial market in the world and is getting bigger with every passing day. And you know what's great their are some very good forex trading systems.

The foreign exchange market is unique for 5 main reasons.

Reason One: is because of its large trading volume. This average daily trading volume of US Treasury Bonds is $300 billion while the US stock market has an average daily volume of less than $10 billion.

Reason Two: because of the extreme liquidity of the market. There is so much buying and selling. You can buy and sell almost instantly, you don't need to hold on to it, if you choose not to.

Reason Three: the large number of, and variety of, traders in the market. These traders in the market consist of banks, commercial companies, investment management firms, hedge funds, an retail forex brokers.

Reason Four: its geographical dispersion. There is no one place that this occurs. The forex market is trading across the globe, it is decentralized.

Reason Five: its long trading hours - 24 hours a day five days a week. This is possible because of the different time zones around the world. Trading begins in Australia, moves to Tokyo, London, and finally New York. This allows you as an investor to respond to currency fluctuations that are caused by economic, social and political events exactly when they occur, day or night.

Basically what the forex market consists of is trading one currency for another currency.

Every time a company or government buys or sells a product or service in another country, a forex (foreign exchange) transaction takes place.

Let me explain this to you the way that it was explained to me. 

You have probably even used foreign exchange at one point in your life, or you will most likely in the near future use it, and are not even aware that you did it.

How?

When you travel to other countries, you buy their currency, when you order online from a company that is in another country you have just used the foreign exchange market.

Let's discuss a little deeper into exactly what this forex market is all about.

There are three important forex markets – London, New York and Tokyo. They account for more than 50 percent of the turnover.

The most traded currencies are the US Dollar, European Euro, Japanese Yen, Swiss Franc and British Pound. These currencies are all traded in pairs. For example the US dollar is traded for the EUR currency.

So the pair EUR/USD for a person, who will make a purchase, indicates that the trader is buying the Eurocurrency and selling the U.S. Dollar because the trader anticipates that the Euros are likely to gain in value as compared to US dollars.

The US dollar is the most commonly traded currency, it's involved in close to 90% of all trades. The Euro is second with 38% of all trades, and followed by the yen.

There are a variety of factors that will affect exchange rates. One of today's most crucial factors that will determine the exchange rates is the supply and demand of a particular currency that in turn is governed by the strength of the currency and the world situation. For the investors that know how to read these changes, the forex market is the right place to trade.

The basic goal in forex trading is to trade the currency in a consistent manner that will give you a profit, the higher the profit of course the better. Right? So if you buy Euros with US dollars you want to sell the Euros for more than you gave for them when the market changes.

So your ultimate goal is to buy low and sell high. Of course that makes sense.

Some people like creating their own forex trading system but some people just don't have the time so they choose to purchase one. There are lots of great choices for both the small forex trader and the proffesional forex traders.

All the best with your forex trading endeavors.

Guy Edrington

Trading Systems