Foreign Exchange Trading - the Biggest Market   by Paul Buchanan

in Finance / Accounting    (submitted 2010-02-11)

The foreign exchange market was originally established as a means of facilitating international trade and investment, by enabling businesses to purchase currencies required to trade abroad. With a higher level of turnover than both the stock and futures markets combined, the Forex market generates an estimated daily trading total of $3.98 trillion.

Of that immense daily total approximately 34% is traded in London, making the British the foremost foreign currency market in the world. Traders engaging in currency exchange include banks, governments, business enterprises, and currency speculators, and it is the sheer size of turnover that draws such large numbers of speculators towards Forex. So popular have Forex products now become that the market has become capable of creating profits even when other markets may be stagnant.

The basis of Forex trading lies in an investor buying one currency long and selling another short. It is a speculative form of trading and it is anticipated that around 70% to 90% of all foreign exchange transactions are made on this basis. With speculative transactions the company or individual that has bought or sold the currency has no intention of taking possession. Instead, their intention is merely to realise a profit on the movement of the currency.

There are many players in the foreign exchange market including individual speculators. For them margin trading is a mechanism that facilitates the buying and selling of assets in excess of the capital held. Forex trading<a/> is typically carried out using margin accounts and carries a fair degree of risk. That is because a trader may hold a position in excess of the value of the account. This creates the possibility for the realisation of considerable losses if the trader gets it wrong and the market moves against their position.

Due to the potential exposure to loss it is imperative that margin traders closely monitor the market. In this day and age of instant information, many Forex speculators choose to follow the market by using online trading platforms. Such platforms, which offer 24 hour access to the trader's accounts, are generally available on a variety of devices, including laptops, PCs, and phones with internet browsing capabilities. Some online trading platforms also offer access to specialist market insights and advice as an additional benefit, tailoring their product offering according to competence. For example, someone relatively new to Forex trading will not require the same online platform as a seasoned professional, and therefore most online trading platforms are tiered according to experience and capability.

Forex trading is speculative and if you are thinking of taking a foray into that world do ensure that you are fully aware of the risks involved before committing yourself to any deal.

This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.