Forex
Overview
Each day, millions of trades are made in a currency exchange
market called Forex. The word "Forex" directly stems off of the
beginning of two words - "foreign" and "exchange". Unlike
other trading systems such as the stock market, Forex does not involve the
trading of any goods, physical or representative. Instead, Forex operates
through buying, selling, and trading between the currencies of various
economies from around the world. Because the Forex market is truly a global
trading system, trades are made 24 hours a day, five days a week. In addition,
Forex is not bound by any one control agency, which means that Forex is the
only true free market economic trading system available today. By leaving the
exchange rates out of any one group's hands, it is much more difficult to even
attempt to manipulate or corner the currency market. With all of the advantages
associated with the Forex system, and the global range of participation, the
Forex market is the largest market in the entire world. Anywhere between 1 trillion
and 1.5 trillion equivalent United States dollars are traded on the Forex
market each and every day.
Forex operates mainly on the concept of
"free-floating" currencies; this can be explained best as currencies
that are not backed by specific materials such as gold or silver. Prior to
1971, a market such as Forex would not work because of the international
"Bretton Woods" agreement. This agreement stipulated that all
involved economies would strive to hold the value of their currencies close to
the value of the US dollar, which in turn was held to the value of gold. In
1971, the Bretton Woods agreement was abandoned. The United States had run a
huge deficit during the Vietnam Conflict, and began printing out more paper
currency than they could back with gold, resulting in a relatively high level
of inflation. By 1976, every major currency worldwide had left the system
established under the Bretton Woods agreement, and had changed into a
free-floating system of currency. This free-floating system meant that each
country's currency could have vastly different values that fluctuated based on
how the country's economy was faring at that time.
Because each currency fluctuates independently, it is possible
to make a profit from the changes in currency value. For example, 1 Euro used
to be worth about 0.86 US dollars. Shortly thereafter, 1 Euro was worth about
1.08 US dollars. Those who bought Euros at 86 cents and sold them at 1.08 US
dollars were able to make 22 cents profit off of each Euro - this could equate
to hundreds of millions in profits for those who were deeply rooted in the
Euro. Everything in the Forex market is hanging on the exchange rate of various
currencies. Sadly, very few people realize that the exchange rates they see on
the news and read about in the newspapers each day could possibly be able to
work towards profits on their behalf, even if they were just to make a small
investment.
The Euro and the US dollar are probably the two most well-known
currencies that are used in the Forex market, and therefore they are two of the
most widely traded in the Forex market. In addition to the two "kings of
currency", there are a few other currencies that have fairly strong
reputation for Forex trading. The Australian Dollar, the Japanese Yen, the Canadian
Dollar, and the New Zealand Dollar are all staple currencies used by
established Forex traders. However, it is important to note that on most Forex
services, you won't see the full name of a currency written out. Each currency
has it's own symbol, just as companies involved in the stock market have their
own symbol based off of the name of their company.
Article Source:
http://EzineArticles.com/1211893