Truthful Answers About Currency Trading (Forex)


by Christopher W Smith - Date: 2007-04-13 - Word Count: 1084 Share This!

One of the largest money markets in the world today is the Forex market. Forex Investors from around the globe meet both in person and online to negotiate the value of varied currencies for other currencies in desire of making big money. But what is Currency Trading (forex)? How do you make money trading foreign currencies?, How difficult is it to get involved? These and more questions tend to come up when people discuss the Forex market. The subsequent paragraphs are designed to help you make out what this new market is, how it works, and how you just might be able to make some money by working the system in your favor.

Here are some common questions relating to Forex Trading:

Are there any other factors that keep individuals from being an investor in the Forex Market?

There are a few factors, yes. The key reason is in the way currencies are traded. In order to make their own profit, the people who perform the actual trades charge a certain amount extra beyond just the exchange rate. The more money you can trade at once, the smaller that difference is, until you get to the top tier of trading where the difference is literally thousandths and hundred thousandths of cents. Most organizations and most individuals can't trade that much money at once, so the differences that they are charged are much more, which in turn makes the draw of Forex trading less lucrative.

What are the most common organizations to take part in Forex trading?

The largest organizations to take part in Forex trading are large banks. Given that they tend to have billions of dollars, they can often access the top tier of Forex trading. After that, it would be Commercial companies and Central banks. These two organizations tend to do the most "on paper" trading, trading over longer periods. After that, it would be investment management firms. These companies tend to exchange currencies more to secure foreign assets for their customers than to make a profit. Lastly, retail brokers who take part in the market on behalf of individuals make up about two per cent of the whole market.

What made countries move from the Gold Standard to the current compact?

The challenge with the Gold Standard is that it triggered bouncing periods of recession and economy booms. A country that was doing well economically would import goods from overseas until their gold reserves were too low to properly sustain the economy. inflation rose to a high level that ensured a recession. Eventually, the recession would cause the cost of that country's goods to sink so low that its goods were very attractive to other countries. Those countries who were doing well economically would begin to import goods and the cycle would continue from country to country. An acknowledgement called the Bretton Woods Agreement, the compact that set the price of the US Dollar and set all other participating countries currencies against it, ended after World War 2 when international trade became so widespread as to render the agreement useless.

Who can participate in the Forex Market?

Basically, only large financial organizations can take part. This boils down to multi-national banks and companies. There are some allowances for individuals to trade, but this must be done through a broker (and often leaves people open to fraud). There are a few reasons for this. First, the amount of money that is needed to make a decent make money in is certainly more than a single individual can invest. Secondly, the way most trades are set up tend to make most of the money "on paper", which means that while there is profit, it's not usually profit you can take and directly put into your pocket. These two things alone make the Currency Trading (forex) fairly unappealing to individuals.

What is the Forex Market?

The Forex or Foreign Exchange market is, at its most basic level, any place where one currency is exchanged for another currency. More specifically, it's where one country's currency is exchanged for another country's currency. An organization, such as a bank or a company, in one country will exchange massive amounts of their own country's currency for another country's currency in the hopes that the exchange rate for the currencies will change in their favor. When and if they do, the organization will then exchange the foreign currency they have for their own country's currency and will have made a profit.

How does the current agreement work?

Currently, there is no compact. Countries base the worth of their money from internal economical situations. If the current economical situation is good, their money is worth more. Conversely, if the economic situation is not so good, the money is worth less. This dependence is what led to the existing Forex Market. Since money worth is based off almost nebulous forces, an organization can attempt to gauge a country's current economical situation. With luck, they can guess correctly and attempt to buy other currency when the currency is worth less and sell the currency when it's worth more. This is how the Forex Market works.

How can you make money in the Forex Market?

It does seem challenging when you realize that most currency exchanges at only a scant cents more or less. For instance, the Euro recently traded at 1.29524 United States dollars. A twenty-nine cent divergence doesn't seem like that much money, particularly when you realize it's rare for the value of a currency to shift much more than a scant cents either way unless some major economic change occurs in one of the countries. Notwithstanding, the organizations that do these trades tend to negotiate money in very massive sums. At that mass of money, even three and four cent differences can end up being a lot of money. In this way, organizations can make a lot of money by taking part of Currency Trading (forex).

Will Forex trading continue into the future?

For the near future, most certainly. One cannot, of course, foretell the future, but with as much money as is being made daily in Forex trading, it is doubtful that most people who are taking part would want to quit. When you add in the fact that many organizations simply cannot drop out of the market since they have so many assets tied up in it, you have a market that doesn't show any sign of weakening. The only way the Forex market will die any time soon is if one or more of the current major trading countries has a huge economic downfall.


Related Tags: forex trading, foreign exchange trading, how to trade forex, trading forex, trading foreign exchange

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