If you're new to the investment arena, you likely hear a lot of terms being tossed around. Like any new investor, you may be wondering what a lot of those terms mean and what they refer to. One of the terms you may have heard is the currency market. Also known as the foreign exchange market, the currency market in the most liquid financial market in the world.
Currency Market Defined
The currency market is similar to a stock market exchange, except that the currency market is involved in the buying and selling of only one commodity rather than a multitude of stocks, bonds and certificates like the stock exchange. The currency market may also be referred to as the foreign exchange market, the forex market or the FX market. This foreign exchange market is where millions of investors all over the world conduct the business of buying and selling different world currencies such as the U.S. dollar, the Japanese yen and the Great Britain pound.
World Wide Trading
The stock market in the United States is made up of publicly traded U.S. companies, while stock markets in other countries are primarily made up of the company stocks which are indigenous to that country. Only select foreign brokers can enable cross-continental trading from one country in another country's stock market. The foreign currency market is enabled through a collaboration across multiple countries and three centers of trading which are located in the United Kingdom, the United States and Japan. As a result, trading in the currency market can occur all over the world from any platform including a private investor's home computer.
In a traditional stock market, the market opens at a set time in the morning and then closes at a set time each afternoon. Trades occur during those set hours, and incompleted transactions must be closed out before the end of the trading day or they will carry over into the next trading day. In strong contrast, the currency market trading occurs 24 hours a day. As one exchange trading center closes in one part of the world, the currency exchange markets open in another country and trading is able to continue seamlessly around the clock.
The currency market is the largest market in the entire world. According to the Federal Reserve bank of New York, billions are traded in the foreign currency markets on a daily basis. The vast liquidity means a fast-moving market which is open to any investor in the world.
Even small-time investors making trades from a home computer can gain access to trades in the currency market. Online foreign exchange brokers like eToro, OANDA and FXTrade offer the chance for investors to enroll and begin trading currencies live for a minimum investment as low as $50.
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