Forex - A Look at Foreign Currency Trading, An Activity Many Are Using to Make

[Isabella Fox]

Forex is an abbreviation for Foreign Exchange. It is similar to the
stock trading business except you are trading a different commodity.
In the stock market, you trade in the shares of publicly listed
companies, while in the Forex, your one and only product or commodity
is money.
Of course, there are different kinds of money from the different
countries around the world. Usually the kind of money you would trade
in would be the top currencies of the world.
These top currencies are the US Dollar (USD), the Great Britain Pound
(GBP), European Euro (Euro), Japanese Yen (JPY), Swiss Franc (CHF),
Australian Dollar (AUD), and the Canadian Dollar (CAD). Each currency
is given its own distinct code to help distinguish one from the other.
The codes are an abbreviation of the country plus the kind of currency
they use.
For instance, since the US uses the dollar, its code is USD while the
code for Great Britain is GBP which stands for Great Britain pound.
That's not to say that other currencies are not given any importance.
It's just that these top currencies are the prime commodities since
they come from the highly developed countries of the world. Their
currencies are relatively safe to bank on. So much so that traders are
willing to invest their funds in the currency and have a bigger chance
of making a profit.
More than a decade ago, only the multibillion companies and banks were
allowed to do Forex transactions, but all this has changed over the
years. Today, even small traders are allowed to handle Forex trading
with as small as a $100 investment.
The amount of Forex transactions around the globe reach an average of
$1.5 trillion dollars every day which makes Forex the largest
financial trading market in the world. Since it is an electronically
controlled business with no specific location, operating 24 hours a
day for 5 days a week, at any point within a day, there are thousands
of Forex transactions being consummated at any one point around the
world.
The beauty of a Forex transaction is that it is so vibrant. The market
is constantly adjusting and changing.
If an economy halfway around the world suddenly experiences a
political crisis, its currency will drop in value, and this will
affect Forex trading around the world especially if the country in
question is one of high visibility and rank.
Forex trading is always done in pairs. You buy a currency and you sell
another currency. Brokers usually are the middlemen in a Forex
transaction. There are several advantages of Forex trading over stock
market trading. Some of them are:
1. The business hours of Forex is non stop 5 days a week. Since
trading is done internationally, time zones are not an issue.
2. The brokers of Forex trading do not receive a commission. What
happens is that they earn from the difference between the buying and
the selling price, which is normally about 1% of the transaction
3. In Forex trading, there is Margin Trading. This is when you can
trade using money that is mostly borrowed. The only requirement is
that you upfront at most 4% of the transaction. The rest of the
capital can be money from another source. This is a great advantage to
have because you don't get to tie up all your funds in one transaction
only.
Forex transactions are done in lots. The smaller lots will have to be
done through a dealer and they are called micro or mini lots.
Otherwise the usual amount of a lot is around $100,000.
4. Corruption in Forex trading is very minimal compared to stock
market trading. You would have a very difficult time influencing the
rate of a currency since it is not really under one one's control. In
addition, the amount of Forex transactions is so large, trying to
influence the Forex market would be near impossible.

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