Trading Forex

Actually the existence of forex trading has long been available since the discovery of techniques to convert a country's currency into another country's currency. However, the new institutionally there after an arbitration body set up futures contracts (futures). An example is the IMM (International Money Market, founded in 1972) which is a division of the CME (Chicago Mercantile Exchange-specific product handling perishable commodities). Another example is the LIFFE (London International Financial Futures Exchange), TIFFE (Tokyo International Financial Futures Exchange).

Turnover that occurs in the forex market reaches U.S. $ 5 trillion per day (survey BIS-Bank for International Settlements, in Sept, 2008). This amount is 40 x higher if compared to the velocity of money on such commodity futures exchange or any other stock market in each stock exchanges of any developed country! This means that the trading volume of that size, this market is very liquid (liquid), and control of trafficking can not be held by only a few parties who have big capital. Currency movements are entirely dependent on the market. There are many large and small players in forex trading, but none of them are able to control the movement of foreign exchange rates.

Frequently traded currency is the currency in the developed countries like the U.S. dollar (USD), Japanese Yen (JPY), Swiss Franc (CHF), British Pound (GBP), Australian Dollar (AUD) and Euros (EUR). All currencies are traded in pairs (called a pair), for example EUR / GBP, CHF / JPY etc.

Then from where I obtained a benefit from this investment? In simple, the benefits of this investment is obtained from the value of the difference when we buy and sell back the currency of the country concerned. For example, in April Amir purchase Dollars with the exchange rate of Rp. 8500, - per dollar of U.S. $ 1000. So at the time of purchase this currency Amir to pay as much Rp. 8500, - x 1000 = USD $ 8.5 million, - Then in May, the dollar strengthened against the rupiah to Rp. 9500, - per dollar, the net profit that Amir got when he sold the dollar return is: (9500-8500) x 1000 = Rp. 1.000.000, - Easy and simple is not it? And because the average time it takes to buy and sell back the currency in question is usually no more than one month, then the forex trading are classified as investments with short-term.

Perhaps such questions will arise from you: "Then what's the difference with buying and selling of forex trading at money changer?" There are some striking differences between forex trading with money changer. In addition to the trading partner is a foreign currency with foreign currency (at the money changer is usually paired with the amount), forex trading does not involve physical trade. And more importantly because it does not involve physical trading, forex trading can be run with system margin or collateral (margin trading).

For example if I want to buy U.S. $ 10,000, then the margin trading system with me enough to spend just 1% amounting to U.S. $ 100 as security. But the benefits I get from the appreciation (increase) the U.S. Dollar is equal in value to U.S. $ 10,000 which I bought. Very simple and because it does not involve trading in physical form (investors do not hold the currency bought or sold, only evidence of the transaction only), then the guarantee given to very small: only 1% of the amount that would be purchased.

Source : belajarforex.com

What is Foreign Exchange Market ??

The foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world.

Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.

In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.

Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with Forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.

Average daily international foreign exchange trading volume was $4.0 trillion in April 2010 according to the BIS triennial report.

Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.

This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).

Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.

Source : Earnforex.com