Foreign Exchange

Today many people consider using the stock exchange as a source of income. Many even make a career investing in the market or performing the various roles (such as broker, regulator) required to make the market function.

Forex stands for foreign exchange, and Forex trading aims to make money by the buying and selling of foreign exchange. A typical investor makes a judgment about the possible rise of a particular currency, say the Euro, and then would typically buy low (at a lower price) and sell high (when the price of the currency rises) therefore booking a profit. One can also trade currencies, such as buying the U.S. dollar at a certain price and selling it (when for example its price rises) to purchase the Euro.

HOW CURRENCY TRADING WORKS

Forex trading offers the opportunity to "play" a global, liquid (in cash or easily convertible derivatives of cash) market with low margin and low commission requirements. Placing a Forex trade would also typically require using a broker who would make the trades on your behalf on your instructions.

Most of Forex trading is speculative, whereby a trader opens a position (buys or sells a currency) without a clear idea of when he or she will close the position (sell the currency or buy back an equivalent amount) to close the position. In order to succeed, the first requirement is discipline. My own personal experience working in investing points to the benefits of using a trading software to aid in the development of a "trading system".

A trading system implies a disciplined methodology to select trades, and conditions on when to enter and exit trades. When I worked in investment and computational finance, I used to code trading strategies which contained rules for which market and index to play, how to choose trades (I used candlestick formations) and entering and exiting trades (based on candlestick formation changes). Candlesticks are a way to visualize the change in the price of stocks.

FOREX TRADE ON A DAILY BASIS

The FOREX market tends to be very unique as compared to the other kinds of markets that deal internationally. The trading volumes are usually very high as big financial institutions make large transactions almost every day.

The average turnover in these markets on a daily basis is about $ 5.35 trillion according to the Bank of International Settlements. The FOREX market trading volumes continue to grow on a daily basis.

One of the best features of this foreign exchange market is it the fact that it permits you to have extreme liquidity. This means that you could sell whenever you wish and buy whatever currency you want to.

It also lets you take advantage of the different exchange rates throughout the globe. So you can make profits if you invest in the right currency at the right time. You have a huge variety to choose where to invest because of the immense geographical dispersion the market offers.

The factors that determine the currency rate depend on various factors, the socio-economic condition, the financial status of the country, etc. The value of the exchange rate is also calculated by taking into account the value of other currencies as well. In other words, the happenings of one country affect other countries too.