What is Foreign Exchange?

Foreign Exchange refers to the Foreign Exchange market; commonly called "Forex" or the "FX" market. With a daily trading average above US$1.9 trillion, it is the largest financial market in the world. Foreign Exchange is the buying and selling of the worlds currencies. The most common currencies traded are the Dollar($), the Yen(¥) and the Euro(€).

Why participate in the Foreign Exchange Market?

There are three principle reasons to participate in the Foreign Exchange Market. The first is the traditional exchanging of currencies for entities that need other currencies either to purchase goods and services or to repatriate foreign profits. The second is corporate "hedging" whereby financial managers hedge against unwanted risk associated with future price fluctuations in the currency market. The third, and by far the largest portion, is currency speculation for profit, whereby traders buy and sell contracts hoping to make a profit off the future movement of the currency rates.

When is the Foreign Exchange Market open for trading?

The Forex market is a true 24-hour market. The trading day begins in Sydney, and moves around the globe as the business day progresses to each financial center, Sydney, Tokyo, London, and New York. Investors can act on fluctuations caused by economic, social and political events at any time.

How much money is required to start investing?

As a general rule the minimum deposit required is around $2,500. Most services allow customers to execute margin trades at up to 100:1 leverage, which results in a $1000 margin account being able to execute a trade up to $100,000. I should point out that until you feel comfortable in your understanding of the Forex market maxing out your margin is not the smartest position. High leverage allows for high profits but also exposes the investor to extreme losses.

Why do currency exchange rates fluctuate?

Exchange rates change due to a multitude of economic and political conditions, most importantly inflation, interest rates, and political stability. Governments will participate in the Forex market to influence the value of their currencies, either by selling large amounts of their domestic currency in order to lower the rate, or buy to raise the price. While large players can influence the market in the short term the size and breadth of the Forex market makes it almost impossible to manage the market in the long term.

How frequently do investors trade currencies?

WHile conditions will always dictate trading activity on any given day, the average small to medium trader might trade as often as 8-12 times a day.