Overview of Forex Trading

The Foreign Exchange( the currency or forex or fx) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions.

The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.

In Stock Market, all participants have access to the same prices, while the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread.

Foreign Exchange Trading or fx trading, clients are able to hedge against, or speculate upon, changes in the exchange rate of two currencies. A currency trading is the simultaneous buying of one currency and selling of another one. The currency trade is the simultaneous buying of one currency and selling of another one. The currency combination used in the trade is called a cross ( for example, the Euro/US dollar, or the GB pound/Japanese yen). The most commonly traded currencies are the so-called "majors" - EURUSD, USDJPY, USDCHF and GBPUSD.

The foreign exchange market is not unified. There is no single dollar rate. Dollar rate varies from one country to another, this is due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is not a single dollar rate but rather a number of different rates (prices), depending on what bank or market maker is trading.

The trading centers in Tokyo, New York and London are the centers of forex trading. However, all are interconnected. Tokyo may be the center for the Asian market, New York for the US and London for Europe but notice the chain of one to the other two.

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