What is Forex?

Whether or not you are aware of it, you already play a role in currency trading. The simple fact that you have money in your pocket makes you an investor in a nation's currency. By holding US Dollars, for example, you have elected not to hold the currencies of other nations. When a currency is traded, the transaction is carried out on the Foreign Exchange market (also referred to as the Forex or FX market). The Forex market is the largest financial market in the world, with over $1.5 trillion changing hands every day!

Unlike other financial markets that operate at a centralized location (i.e., the stock exchange), the worldwide Forex market does not have a central location. It is a global electronic network of banks, financial institutions and individual Forex traders, all involved in the buying and selling of national currencies. A major feature of the Forex market is that it operates 24 hours a day, corresponding to the opening and closing of financial centers in countries all across the world. At any time, in any location, there are buyers and sellers, making the Forex market the most liquid market in the world.

What is Forex? Traditionally, access to the Forex market has been made available only to banks and other large financial institutions. However, with advances in technology over the years along with the industry's high leverage options, the Forex market is now available to to money managers tand individual Forex traders.

With some initial capital (as low as $200 with CMS Forex), and a computer with an internet connection you can become a participant in this global and liquid financial market.

Trading Forex

The individual trader attempts to determine trends in the price movements of currencies, and by buying or selling currency pairs, attempts to gain profits. The most often traded currencies, the major currencies, are those of countries with stable governments and respected central banks that target low inflation. Currencies that often trade along with the U.S. Dollar include the European Euro, the Japanese Yen, and the British Pound as they are the most liquid. A trader can trade these currencies in any combination. CMS Forex also offers the Swiss Franc, and the Canadian, Australiana and New Zealand Dollars making for 19 total trading instruments when acounting for all the cross pairs. More "Exotic" currencies are not offered as they are often tightly regulated and simply too illiquid.

Forex Vs Stock

Dissimilar from trading in the equity market, forex does not have any restrictions on short selling. No matter which way the market is moving or whether a trader is short or long, profit potential (and risk) exists in the forex market. Because currency trading involves the buying and selling of currency pairs, traders have an equal potential to profit (or lose) in a falling or rising market.

In the forex market, over $1.5 trillion worth of trades are traded daily, which makes the currency trading market the most liquid market in the world – trading in 1 day what Wall St. trades in 1 month. No matter what time of the day or night it is, the forex market is always moving, and around the world active traders are buying and selling currencies.

Forex Vs Future

The benefits of trading forex over futures may be significant. The forex market is the largest, most active financial market in the world, executing over $1.5 trillion a day – or about 46 times greater than all futures markets combined. Compared to the $30 billion futures trades executed daily, the volume of the Forex market is clearly superior. The daily futures volume on the CME is only slightly over 2% of the volume generated in the forex market. This tremendous liquidity is one of the many advantages that having full access to the forex market has over futures.

Fundamental Analysis

Fundamental analysis involves examining the intrinsic value of a nation’s currency based on economic news releases that reflect the strength, or weakness, of a country’s economy. Fundamental traders follow these news announcements, known as “fundamental indicators,” because they paint a picture of a currency's strength in relation to other countries.

Fundamental indicators are reports that include statistical data on things such as employment, gross domestic product (GDP), international trade, retail sales, housing, manufacturing, and interest rates. The stability, growth, or decline in any of these sectors may have an effect – direct or indirect – on the value of a country’s currency.