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Introduction to the Forex Trading


									Introduction to the Forex Trading

As you might know, the foreign exchange market is the largest financial
market in the world. There are over $1.2 trillion changing hands every
single day. Compare that to the $25 billion a day trading volume at the
New York Stock Exchange. In fact, it is three times larger than all of
the US Equity and Treasury markets combined together.

The popularity of foreign exchange market has accelerated rapidly in
recent years as the prospect of 24 hour, high leverage, very liquid
trading, has caught the interest of many traders. Before coming the
internet age, previously only large corporations, hedge funds, large
commodity trading advisors, and other institutional investors which can
access this market and do forex trading. However, with the ascendancy of
online/internet trading, many firms have opened up to the individual
traders, providing leveraged trading as well as fully featured execution
platforms, charts, and real time news.

What is traded on the foreign exchange market? The answer is simple:
money. Forex trading is where the currency of one nation is traded for
that of another. Therefore, forex trading is always traded in pairs. Te
most commonly traded currency pairs are traded against the US Dollar
(USD). The major currency pairs are the Euro Dollar (EUR/USD), the
British Pound (GBP/USD), the Japanesse Yen (USD/JPY), and Swiss Franc

As mentioned before, because there is not a central exchange for the
forex market, these pairs and their crosses are traded over the
telephone, facsimile, and internet, through a global network of banks,
multinational corporations, importers and exporters, brokers,
institutional investors, as well as individual traders. Now, almost
anyone with a computer and an internet connection can trade currencies
just like the world's largest banks do. There are now over 6 million
trading accounts worldwide up from only 1.7 million in 1997.

Unlike the US currency futures markets, which have fixed daily trading
hours, the forex market is a seamless, 24 hour market. At 2 p.m. ET each
Sunday, trading begins as markets open for the week in Wellington, New
Zealand, followed by Sydney and singapore. At 7 p.m. ET the Tokyo market
opens, followed by London at 2 a.m. and New York at 8 a.m. This
overlapping movement of currency trading among market centers allows
traders to react to news immediately, and also provides the added
flexibility of determining their trading schedules. If important news
occurs while the US currency futures markets are closed, the next day's
opening could be a wild ride.

Many currency brokers (dealers) do not charge outright commision fees to
individual traders. Instead, they profit from the bid-ask spread they
set. As a result, many currency firms promote their low spreads rather
than their low commission rates. Whether this is a good deal or not
depends on the size of the spread in a given currency.
In addition to the market's trading opportunities, foreign exchange can
be a solid diversification component in your financial portfolio. Most
diversification strategies involve a combination of sector allocation,
foreign and domestic equities, and fixed income.

Some participants have branched out into precious metals and/or energy
products; however, few traders consider expanding into forex. Why? The
reason may be in the simple fact that in the US, investors tend to be
underexposed to foreign exchange. Unfamiliarity typically breeds
misconceptions, and foreign exchange in the US is no exception.

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