An Introduction to Currency Trading

The Foreign Exchange Market is by far the globe's largest market in terms of trading volume an amazing 1.7 billion dollars per day, which exceeds both the US bond and equity markets. It trades 24 hours a day and is by far the most liquid and volatile market to trade.

A Brief History of Forex

It all began in the year 1944, when the major Western Industrialized nations agreed to a "pegging" of the US$ Dollar at $35.00 to the Troy ounce of gold. This was known as The Gold Standard. In 1971 due to increasing US budget and trade deficits, President Nixon abandoned the Gold Standard, directly pegging major currencies to the US Dollar. Later due to the major devaluation of the US currency, the fixed-rate system was totally discarded and the floating exchange rate system came into being.

The Forex Market is an interbank market and it has no physical location. It is a self-governing market with little regulation. Transactions are done via telephone or an electronic network.

The world's leading dealing centers are London, New York, Tokyo, Zurich and Frankfurt and the major currencies are the US Dollar, Japanese Yen, Euro, Swiss Franc, British Pound. The Dollar is the base currency for most of the other currencies.

The major participants involved in the Foreign Exchange Market are the Governments and Central Banks, Banks and Investment Banks, Hedge Funds, speculators and Businesses.

All currencies are assigned an International Standards Organization (ISO) code abbreviation. A currency exchange rate is typically given as a bid price and an ask price. The bid price is always lower than the ask price. The bid price represents what will be obtained in the quote currency when selling one unit of the base currency. The ask price represents what has to be paid in the quote currency to obtain one unit of the base currency.

Currency Trading:

The currency market is essentially a 24 hour market that begins trading in Auckland, New Zealand and continuing through Asia, Europe ending with America. Most currencies are traded against the dollar. The currency rates are fixed by the supply and demand forces in the market. This is called the floating exchange system. Various factors influence the rates including political and economic causes.

More on Currency Markets and Trading next week