Information on Trading Foreign Currency
With a daily volume exceeding $3 trillion (as of 2007), the foreign currency market is the largest securities market in the world. Most of this volume is due to traders who buy and sell currency hoping to profit from fluctuations in exchange rates. Trading foreign currency (commonly called Forex) is a high profit and high risk activity that continues 24 hours a day every business day around the world. The most popular methods of trading foreign currency are on margin and Forex options.
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Online Trading
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Trading foreign currency takes place almost entirely online using specialized trading software. Forex is a network of financial institutions and dealers, not a physical location like stock exchanges.
Currency Pairs
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Currencies are listed and traded in pairs based on their exchange rate. For example, EUR/USD = [exchange rate] states the exchange rate of the euro and U.S. dollar currency pair.
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Major Currencies
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Any currency can be traded with any other, creating a unique pair. The largest volume currencies traded are the U.S. dollar, euro, British pound, Swiss franc and Japanese yen.
Self-Regulating
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There is almost no government regulatory body that oversees the Forex market. In the United States, the National Futures Association acts as a self-regulating body.
Margin Trading
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Trading foreign currency with very low margin requirements is the most popular method. A trader can put up as little as $250 to trade $100,000 of currency.
Forex Options
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Forex options give the buyer the right to buy or sell a currency like other options. However, in Forex the trader chooses the strike price and expiration date of the option.
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