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What Sets the Forex Market Apart?

July 18, 2009 by  
Filed under Forex Market

The forex market is one of the most interesting trading markets out there because there are so many different aspects that make it unique. While many traders are familiar with the stock market and even commodities, these pale in comparison to the sheer volume traded on the currency exchange markets, more commonly referred to as the forex market.

The first thing to know is that the forex market is by far and away the largest trading market in the world with a volume that is in excess of $4 trillion USD a day. No other market comes remotely close to matching this sheer trading volume. Currencies are always traded in pairs, so a USD/JPY trade means US dollars are being used to buy Yen, while selling those positions means those Yen are used to buy dollars.

While trading can be done with minor currencies, the majority of trades are from the eight “major currencies” of the U.S. Dollar, Canadian Dollar, British Pound, Swiss Franc, Euro, Japanese Yen, Australian Dollar, and New Zealand Dollar. This is why economic reports from these eight regions are so important since those directly affect the price of each currency in relation to the others.

The next thing to know about the forex market is that trades are heavily leveraged. This is what gives the opportunity for huge profits but also opens the door for impressively big losses as well. Normally in the forex a trade is leveraged at 100 to 1. This means a single dollar put down for trading controls $1,000 of currency that’s being traded. This is how a change of .001 can lead to profits or loss – because the leverage is so heavy.

So who trades the currency market? The market is available and open for general trading, so anyone with an Internet connection can open up an account. Day traders are a prime example of individuals who trade the Forex. Many large banks and financial institutions participate as well.

One word of warning: trading the forex is nothing like trading in commodities or the stock market. The combination of market volatility and leverage can be a very dangerous combination despite the opportunities that abound. Many traders have gone in who were successful at stocks and commodities but ended up getting hammered when they tried to wade into the forex without doing their homework.

The forex is unlike any other market in the world. Not only is trading so wide spread across many different nations and currencies, but the market is active 24/7, six days a week. Forex might be relatively new on the scene when it comes to trading markets, but it’s not one to be taken lightly and it’s not one where you can rest on past laurels to carry you through. To be successful a trader has to be on top of his or her game for every single trade because one bad run can completely wipe out a position.

At the end of the day however there’s no denying that no market offers the opportunity of the forex market.

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