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Forex Market
FOREX Market
The FOREX market (FOReign EXchange market) involves buying and selling foreign currency.
Currencies like the U.S. dollar and Euro can be exchanged for one another. Initially, you could buy one Euro for one dollar. In September of 2006 one Euro would cost about $1.27. That is, the Euro has become more valuable relative to the dollar.
The graph below show the trends for major FOREX market currencies.
The FOREX market symbol "EUR/USD" represents the relative strength of the Euro to the U.S. dollar. In September of 2006 Euro was 1.27 times stronger than the U.S. dollar.
The FOREX market basically involves buying and selling currencies, taking educated guesses about how these relative strengths will change over time.
If you believe the Euro will get increasingly stronger, you may make money by trading on the FOREX market. If you believe the Euro will become weaker relative to the U.S. dollar you may also make money on the FOREX market. Of course, you will actually make money only if you correctly predict the direction of the change.
When you trade you are actually buying one currency and selling another currency. For example, if you buy EUR/USD you will be buying Euros and selling Dollars. (That is, you will be buying Euros with U.S. dollars.) When you close your transaction, you will be selling back Euros and buying back Dollars. You hope, of course, that the Euro has increased its value over the time you held Euros.
FOREX Market Advantages
There are many advantages of the FOREX Market over other markets. Among these are:
- 24 Hour Trading The FOREX market is open 24 hours every day for trading
- Liquidity The FOREX market is open to traders around the world and trades are always available
- No Commissions The FOREX market is totally electronic with no brokers required to place your order. Accounts show a slight difference (spread) between the bid and asked prices. These differences provide the expenses to maintain the system.
- Leverage You can typically control 10 times the value of currency that you have in your trading account. Through margin (borrowing from your account vendor) you can control even more.
- Profit from Rising or Falling Markets You can buy or sell currencies depending on whether you believe they will increase or decrease in value
For more information about the FOREX market please see the
FOREX Market explanation page.
FOREX Market Software
Many vendors provide FOREX market software that allows you to view ask and bid prices, view various charts of current and historical activity, view FOREX market commentary, and enter buy and sell transactions.
There are two basic methods vendors provide to assist you in your trading activities:
- Web-based You enter the vendor's web site and log in. You can access your account from any Internet connection, even while traveling.
- PC-based You load the vendor's software as an application on your PC. You run the software and log in to your account. Your PC then retrieves current data and allows you to trade by sending transactions to the vendor's site.
In both cases, your transactions are securely encoded between your computer and the vendor's site. Most systems use at lease 64-bit encoding to ensure your communications will not be understood by others.
You will typically be able to look at various charts that show historical prices. Often, traders use these charts (like the candlestick chart) in their "technical analysis" to find support and break out prices that they use in determining when to trade.
Many vendors also provide FOREX market commentary. This can help you know what the experts think will happen in the market. You can see how various economic indicators are used to help predict changes in the market.
For the US Dollar, many indicators can be used to help predict how the dollar will fare against other currencies. Some of these indicators include:
- Consumer Confidence Index
- Consumer Price Index
- Employment Report
- Federal Open Market Report
- Gross Domestic Product
- Balance of Trade
- Housing Starts
- Producer Price Index
Similar indicators in other countries can help you understand how one currency may compare to another currency in the near future.
See an example of FOREX Market Software.
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