Financial institutions have been exchanging currencies for decades through the Foreign Exchange Market. Forex is short for the Foreign Exchange Market. Forex, or FX became a popular investment strategy for corporations during the 1970s. The Internet opened the door for all FX investors in the 1990s. Forex trading may sound complicated, but a proven strategy and a solid understanding of currency values is the key to being a success.
Over two trillion Forex dollars are traded daily, and a large number of those trades are done on the Internet by average investors. The first thing to learn is the forex market regulates itself. There’s no board of directors, and there’s no central location. It is one of the most liquid markets in the world. Trades are made twenty-four hours a day. Since the market never closes investors can respond to political, social and economic events in real time. That gives investors a great deal of flexibility.
The concept behind currency trading is a simple one. FX Trades are done in pairs. One currency is exchanged for another currency. A common pair is the United States Dollar and the Euro. In order to trade, the seller, known as a Forex Broker, states an asking price and a buyer makes a bid. The difference between those two factors is known as a spread. The spread is, usually, one or two-hundredths of a cent. Forex Brokers will, usually, add three to twenty pips, to the spread and that serves as their commission. The beauty of Forex trading is in the fact that there are very low margin requirements.
Since the Forex market is unregulated, the U.S. Securities and Exchange Commission recommends using a broker that has membership in the National Futures Association. That association is the industry’s self-regulating organization. A reputable broker will supply software, market quotes and Forex charts. All FX transaction are completed through electronic funds transfer. Mini accounts are available for beginners. Mini accounts can be opened for as little as twenty-five dollars. Mini accounts trade in micro-lots, so new investors can get a feel for the exchange market.