The Basics of the Foreign Exchange Market

Topic Cover | Basics, Forex, Exchange, Trading, Market


At the completion of this lesson, you should understand:
The characteristics of foreign exchange and how it differs from other financial markets.
The driving forces behind today's foreign exchange market activity.
How the advent of online foreign exchange trading on margin has benefited the individual trader.

Overview:

•  What is Foreign Exchange?
•  A Short History of the Foreign Exchange Trading Market
•  Trading Margin FX
•  Margin FX - The New Frontier
•  Summary

Exercises

Test Your Knowledge

What is Foreign Exchange?Foreign exchange consists of trading one type of currency for another. Unlike other financial markets, the FX market has no physical location and no central exchange. It operates "over the counter" through a global network of banks, corporations and individuals trading one currency for another. The FX market is the world's largest financial market, operating 24 hours a day with enormous amounts of money traded on a daily basis.

Unlike any other financial market, investors can respond to currency fluctuations caused by economic, political and social events at the time they occur, without having to wait for exchanges to open. Access to modern news services, charting services, 24- hour dealing desks and sophisticated online electronic trading platforms has seen speculation in the FX market explode, particularly for the individual trader.

The currency markets are not new. They've been around for as long as banks have been doing business. What is relatively new is the accessibility of these markets to the individual speculator, particularly the small- to medium-sized trader