Understanding The Foreign Exchange Market

With the world increasingly becoming a global village, more and more people are travelling and doing business in different parts of the world. Under such circumstances, it is crucial that you have a local currency of the country you are visiting to aid in your travel. Traditionally, travelers have been buying and selling currencies to aid in their travel and business through banks. These banks set particular rates and sell currencies to those in need. However, during the late 1970s, this trend changed and traders began adopting what is now referred to as the foreign exchange market.

The foreign exchange market is also referred to as the currency or forex market. In simple terms, this is where currencies are traded. This is the largest market in the world with a turn over of 1.3 trillion dollars per day. What began as inter-bank exchange has now grown to the point where there is a floating exchange rate which is determined the demand and supply of a particular currency. Today, anyone with knowledge of how the financial markets work can take part in Foreign Exchange Trading.

The foreign exchange market is entirely dependent on supply and demand making it a highly volatile market. In addition, despite the fact that only a few major currencies are traded in the forex marketplace, the trading volume is extremely high. This is because every country is part of this market and has financial institutions and individual traders who trade in foreign exchange thus creating a high volume of currency for trade.

Today, you can trade in foreign exchange over the Internet from any location in the world. All you have to do is open your online forex account with the broker of your choice, deposit funds and start trading. The foreign exchange marketplace is open 24×7 making it possible to traders across the world. However, expert traders know that there are certain hours of the day when the market is at its peak. During these hours, there is a lot of volatility and certainly a lot of movements. These are known as the Power Hours and they usually coincide with the closing of the European trading sessions and the start of the US session. Also, the forex market has its cold zone where there is not much movement. This usually occurs when both the US and European sessions are closed while the Asian session is open.

The amount of profit that you can make in the foreign exchange market can be enormous if you make appropriate use of leverage. However, you should exercise caution not to overindulge in leverage without adequate training as this can quickly lead to your downfall.