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Forex, the largest Financial Market in the World

By: John Seth

Read More About Currency Trading

What is this huge market called the FX?

The forex (foreign exchange, FX, or currency market) is an over-the-counter (OTC) financial market for the express purpose of buying and selling of currencies, it is a decentralized and worldwide market.
The reason the forex market exists is to simplify international trade and investment. This market makes it much easier for large corporations to convert their home currency to another foreign currency with relative ease.

Many people believe, however, that the foreign exchange today is used to simply trade for profit rather than exchange currencies. As a matter of fact, it is believed that over 70% of all trades are speculative in nature meaning there was no intention to physically take delivery of the currency. Most people don't know that using a forex robot (expert advisor or ea) automated trading system helps to lower risk, analyze data, and take advantage of speculative opportunities in the FX marketplace.

Some aspects of the fx market that make it special are:
o Open for trading 24 hours per day, 5 days per week (closed on weekends same as the banks).

o Massive variety of factors that may have an effect on the exchange rates.

o Incredibly high leverage available to help increase profit margin on the very small price movements of currencies.
o Very good market liquidity resulting from high trade volume.

The FX being the largest market of any kind in the world, has an estimated daily transaction volume of almost $4 trillion dollars! This is where the big-guns are. These players would be large banks, central banks, well funded speculators, large corporations, government bodies, and other financial institutions such as hedge funds, pension funds, etc.
The growing selection of execution venues (brokers and dealers/market-makers) has made it easier for retail traders (individuals) to trade in the fx market.

Even with how large the fx market is, almost 80% of the dailytraded volume is credited to the top 10 most active traders, all of which giant multinational banking institutions.

These large international banks constantly provide the market with both the bid and ask pricing.

The bid/ask (buy/sell) spread is the difference between the price that the market-maker or bank will sell and the price that the wholesale or retail customer will buy. In other words, the market-maker would sell to the customer at the higher 'ask' price and would buy from the customer at the lower 'bid' price keeping the difference as the cost of completing the trade. This 'spread' is typically very small (usually 0-3 pips) for the more actively traded pairs of currency.

Currencies are traded against one another with each pair being an individual trading product. Currency pairs are most often noted as EURUSD or GBP/USD for example. The first currency of the pair is the base currency and is quoted relative to the second currency in the pair also called the counter or quote currency. For example, a quotation of EUR/USD 1.4453 would be the price of the euro expressed in US dollars or in other words 1 euro = 1.4453 US dollars.

The standard lot size in the fx market is 100,000 units of the base currency although 'mini lots' of 10,000 units can also be traded at certain brokerages.

All of the major currencies (the 'majors') except for the Japanese yen are priced out four decimal places (1.4453). A pip (percentage in point) is one unit of the 4th decimal place (1.4453) or 1/100th of 1%. For JYP a pip refers to the 2nd decimal place.

While this is only the 'tip of the iceberg' of what the forex market truly is, some of the best forex robots may help tremendously in working with all of the available statistics from the market and making 'buy' and 'sell' decisions without the end user having to become a foreign exchange expert or professional trader.

Article Source: http://depositarticles.com/

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