The forex market is potentially the largest trading market worldwide despite receiving less attention than that of the stocks or bonds markets. The trading done on the foreign exchange market is primarily a transaction of trades. Unlike different global markets, the forex market conducts the forex exchange trading via numerous financial centres worldwide and not a single trading exchange.
In recent years the market has become accessible and available to all individuals due to technological internet advancements. Before this foreign exchange trading was reserved to the larger financial corporations and governments. The internet has allowed individual forex traders to not only gain access to this trading market but profit from it as well.
The differences between the markets
The foreign exchange trading market shows many differences when compared against other financial trading markets. These differences include:
– An absence of limits on the different currencies one is allowed to trade
– An absence of limits on the currency amount one is allowed to trade
– Trading hours of 24 hours per day for five days per week
– The foreign exchange is not controlled by any central organisation thus limiting the number of rules one must adhere to. The trader is not help liable if they make use of information available and accessible to them, such as insider trading.
– The forex market has no governing agencies which provide insurance that all parties must honour their participation in the trade. Foreign exchange trading is mostly unregulated, although certain countries do have regulatory agencies to ensure ethical trading occurs.
– Unlike the stock market, the trader is not required to pay exchange, clearing or forex brokerage fees in the currency. Forex brokers will earn their income based on the difference between the currency buying price and selling price. This is known as a spread.
– It is rather simple to buy and sell currency in the forex market. The market size makes it impossible for one to be stuck with a currency pairing they do not wish to hold any longer.
Buying and selling currency on the foreign exchange market
The primary item traded on the forex market is foreign currencies. A trader would usually trade currencies in pairs, for example GBP/USD would indicate a trading of the Great British pound and the US dollar. While you are not purchasing any physical items you are making a transaction in buying a foreign country’s currency. It should be noted that this trade is conducted online thus no physical money ever changes hands. All transactions which occur on the forex market are linked via a network of banks and other financial institutions making the foreign exchange market an interbank market. One could consider foreign exchange trading to be a form of investment in a share in a foreign country making bets on a success or failure of that particular countries economic situation.
Profits or losses when foreign exchange trading
The primary objective when trading on the foreign exchange market is to achieve a profit when selling the currency bought. One should see a profit at the point when you convert the currency you purchased back into your domestic or local currency.