| What
Is Forex?
Forex is
short for foreign exchange. The Forex
is the largest financial trading market in the world. Between
$1 and $2 trillion dollars are traded on the Forex every day,
compared with about $25 billion dollars traded daily on the
New York Stock Exchange.
Forex involves
the buying of one currency e.g. UK Pounds (GBP), and selling
another currency e.g. U.S. Dollars (USD). (Currencies are always
quoted and traded in pairs.) The actual buying and selling is
done through a dealer or broker.
When you
buy shares in a particular company, you are in effect investing
your money in that company. You hope the company will be successful
and prosper, so the value of your shares will increase. In just
the same way, when you buy the currency of a particular country
on the Forex, you are investing your money in the economy of
that country. If the economy of the target country is healthy,
then the value of your currency will increase, and you will
make a profit.
The Forex
is not located in any one physical location. The entire
foreign exchange market operates on a 24 hour time scale. The
Forex is run electronically through telecommunications links
between centers in different countries.
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The Forex
market has been in existence since 1971, but until the start
of the 21st. Century, only individuals and companies with tens
of millions of dollars could afford to trade the Forex. All
that has changed now however. All you need to get started is
a computer with a fast (DSL) internet connection. Plus you
can get started with an investment of as little as $100.
The seven
most popular traded currencies in the Forex are U.S. Dollars
(USD), Euros (EUR), Japanese Yen (JPY), UK Pounds (GBP), Swiss
Francs (CHF), Canadian Dollars (CAD) and Australian Dollars
(AUD). Foreign currency symbols consist of three letters. The
first two letters identify the country, while the last letter
identifies the currency of that country's currency.
For
example:
USD:
U.S. = United States, D = Dollars.
GBP: GB = United Kingdom (Great Britain), P = Pounds.
The reason
the Forex market is open 24 hours, is because at any time during
the 24 hours, a financial center is open for business somewhere
in the world. And because the foreign exchange market is open
around the clock, you can trade the Forex any time that suits
you best.
The four
currencies with the highest trade volume (in order) are U.S.
Dollars (USD), Euros (EUR), Japanese Yen (JPY) and UK Pounds
(GBP). These four currencies together with Swiss Francs (CHF),
Canadian Dollars (CAD) and Australian Dollars (AUD) are called
Major Currencies.
Advantages
Of Forex Trading
Forex trading
has a number of advantages over stock market (share) trading.
1.
There are no broker commissions as such. Forex dealers earn
their income from the "spread" (difference) between
the buying and selling prices. This is usually a fraction of
one percent of the relevant trade.
2.
The Forex market is open 24 hours 5 days per week. Unlike share
trading you can trade any time you want. The Forex market is
open continuously from 0:00 AM GMT Monday to 10:00 PM GMT (5:00
PM EST) Friday.
3.
It is difficult for individuals or even companies to artificially
influence the Forex market. This is because the sheer volume
of daily trading is so large. (However, some corrupt individuals
can influence the value of shares. For example by sending out
millions of emails, stating that shares in a particular company
are about to increase sharply and encouraging recipients to
buy them.)
4. You
can trade the Forex using borrowed capital. This is called Margin
Trading. Margin trading is where you use between 0.5 and 4 percent
of your own money to control a much larger amount of borrowed
money. This enables you to leverage your investment. The Forex
is traded in lots, a standard lot is $100,000, Some dealers
allow you to trade in smaller lots, called Mini- and Micro-
lots.
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