Online Forex
The foreign exchange market, commonly known as “Forex”, effectively trades currencies globally. The very existence of Forex enables international trade and investment to occur seamlessly. Because of the geographic distance between trading partners, online Forex transactions are the most common.
The Forex market is different from most other trading markets (e.g. stock exchanges) because of the following factors:
- Extreme market liquidity
- Massive trading volume
- Geographical dispersion
- Extremely low profit margins (but absolute profits can be high due to trading volume)
- Many factors can cause extreme volatility in exchange rates
The Forex market is the largest and most liquid financial market in the world. Traders include large banks, currency speculators, corporations, governments (including central banks), and other financial institutions. Out of roughly $4 trillion dollars traded on a daily basis, the London Market alone accounts for over 34 percent of the worldwide total, solidifying its role as a global leader in the Forex market. New York and Tokyo accounted for the second and third highest Forex trading volume, with 16.6%, and 6.0%, respectively.
Forex Online
Forex traders can buy and sell foreign currencies through use of various trading platforms which are available. Because of the relatively small profit margins and because of market volatility, it is critical that trades occur immediately, or “realtime”. Forex traders consider multi-currency capabilities, reliability, system security, and integration with other applications as key factors when choosing a Forex trading platform.
Many basic transactions rely heavily on Forex trading. Consider a simple example of a Forex transaction. A United Kingdom resident has decided to purchase a retirement home in Thailand. The purchase price is 10,000,000 Thai Baht (THB). The buyer’s local currency (or “base currency”) is Great Britain Pounds (GBP), and the current exchange rate (as of 10 April 2009) is 53.4035 THB per GBP. The buyer then, needs to transfer 187,254 GBP to the seller’s agent to purchase the home.
This same transaction in January, 2007 would have required only 141,984 GBP (based on exchange rate of 70.4307 GBP per THB), or 24.2% less. This simple transaction is a very good example of the volatility and risk associated with Forex trading.
Before you begin currency trading, take time to understand the Forex market, the market players, and the Forex trading platforms available to you. And before considering Forex trading platforms, make sure you have fully and clearly defined your requirements.
