4:33 AM
Ken Okosun
What is FOREX?
You may be more aware of FOREX than you think. All this term actually refers to is the FOReign Exchange Market and the buying and selling of currencies.
The FOREX that we know of today began in the early 1970’s when worldwide countries switched from the Bretton Woods system to a floating exchange rate – a change that has certainly made a difference to their trading.
To date FOREX is one of the largest liquid financial markets in the world trading $1-$1.5 trillion a day between banks, central banks, corporations, governments, speculators and other financial institutions.
Okay, but how does it work?
The goal to succeeding in this niche is to successfully buy one currency and resell it at a better price.
Unlike the NYSE - where foreign currencies are centralised on an exchange - with FOREX it is much simpler.
Through telecommunications, trading can globally take place 24 hours from 00:00 GMT on Monday to 10pm GMT on Friday, using all major currencies. US Dollars, Euros, Pound Sterling, Japanese Yen… whether you are looking to pay employees on the other side of the world or are interested in speculating, FOREX can give you that freedom.
For many investors though, they prefer to speculate currency prices rather than buy. All they need is $500 to begin with and using marginal trading they can get a credit line and monitor their potential gains and losses.
Marginal trading: “Trading done through borrowed capital and without a real money supply.
Who is involved?
Like we mentioned above there are a number of different businesses/individuals involved in the day-to-day transactions of the foreign exchange market and each have got their own level of access.
The inter-bank market for example is positioned at the top, and has access to spreads unknown to players outside of the inner circle.
The most important ones you need to be aware of though are the following:
• Inter Banks/ Banks – these bad boys cater for the majority of commercial turnover and speculative trading that occurs every day. From trading on behalf of their customers to trading for the bank’s own account, billions of dollars are traded here daily.
• Commercial Companies – an integral player in this market, a lot of their financial activities come from seeking foreign currency exchanges to pay for goods and services at their global offices. More often than not they choose to trade in fairly small amounts and make little impact on market rates during the short term.
Central Banks – Similar to the Bank of England, Central Banks use their foreign exchange reserves to help stabilise the market. Whether it is controlling money supply, inflation, or interest rates, alterations in their rates can impact upon FOREX.
Hedge Funds – Between 70% - 90% of transactions on the foreign exchange are speculative. To explain this process more clearly, all hedge funding actually involves is people/institutions who have got no plan of taking delivery of the currency after they have bought/ sold it on the exchange. Instead their purpose is to speculate over the movement of that currency and the impact it will have.
Investment Management Funds – these usually involve firms who manage large accounts on behalf of their clients and whom use the foreign exchange market to help them control transactions in foreign securities.
These can either be pension funds or endowments.
Foreign Exchange Brokers – There are 2 types of retail brokers: retail foreign exchange brokers and market makers. Through them retail traders can participate in FOREX.
Continue in Tip # 2 Read On
Okay, but how does it work?
The goal to succeeding in this niche is to successfully buy one currency and resell it at a better price.
Unlike the NYSE - where foreign currencies are centralised on an exchange - with FOREX it is much simpler.
Through telecommunications, trading can globally take place 24 hours from 00:00 GMT on Monday to 10pm GMT on Friday, using all major currencies. US Dollars, Euros, Pound Sterling, Japanese Yen… whether you are looking to pay employees on the other side of the world or are interested in speculating, FOREX can give you that freedom.
For many investors though, they prefer to speculate currency prices rather than buy. All they need is $500 to begin with and using marginal trading they can get a credit line and monitor their potential gains and losses.
Marginal trading: “Trading done through borrowed capital and without a real money supply.
Who is involved?
Like we mentioned above there are a number of different businesses/individuals involved in the day-to-day transactions of the foreign exchange market and each have got their own level of access.
The inter-bank market for example is positioned at the top, and has access to spreads unknown to players outside of the inner circle.
The most important ones you need to be aware of though are the following:
• Inter Banks/ Banks – these bad boys cater for the majority of commercial turnover and speculative trading that occurs every day. From trading on behalf of their customers to trading for the bank’s own account, billions of dollars are traded here daily.
• Commercial Companies – an integral player in this market, a lot of their financial activities come from seeking foreign currency exchanges to pay for goods and services at their global offices. More often than not they choose to trade in fairly small amounts and make little impact on market rates during the short term.
Central Banks – Similar to the Bank of England, Central Banks use their foreign exchange reserves to help stabilise the market. Whether it is controlling money supply, inflation, or interest rates, alterations in their rates can impact upon FOREX.
Hedge Funds – Between 70% - 90% of transactions on the foreign exchange are speculative. To explain this process more clearly, all hedge funding actually involves is people/institutions who have got no plan of taking delivery of the currency after they have bought/ sold it on the exchange. Instead their purpose is to speculate over the movement of that currency and the impact it will have.
Investment Management Funds – these usually involve firms who manage large accounts on behalf of their clients and whom use the foreign exchange market to help them control transactions in foreign securities.
These can either be pension funds or endowments.
Foreign Exchange Brokers – There are 2 types of retail brokers: retail foreign exchange brokers and market makers. Through them retail traders can participate in FOREX.
Continue in Tip # 2 Read On
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