What is Forex Trading? Simply put, it is the trading of currencies on the global over-the-counter financial market. With the exception of weekends, the forex market trades 24 hours a day. It is the FX market that determines the relative value of the various currencies around the world. There is no centralized trading exchange, but rather, a collection of financial centers that act as trading hubs between buyers and sellers. Volume for the FX market is estimated to be over 4 Trillion dollars a day. This makes the currency market the most liquid trading arena in the world. This in turn draws in traders of all types. There are opportunities for Fundamental and Technical traders alike. And with global players like Deutsche Bank, Barclays Capital, and Credit Suisse, there will always be volume. As of 2010, the Triennial Central Bank Survey estimated daily Forex Trading turnover to be $3.98 trillion dollars per day. The UK is the largest global center for currency trading. It accounts for almost 37% of the daily trading. Here is a list of the Top 10 currency trading bank players…
1. Deutsche Bank 2. Barclays Capital 3. UBS AG 4. Citi 5. JPMorgan 6. HSBC 7. Royal Bank of Scotland 8. Goldman Sachs 9. Morgan Stanley
Banks are not the only players in the forex trading markets. Multinational Corporations, Pension Funds, Insurance Companies, Mutual Funds, and regular market makers all compose the daily players. It truly is the universal trading environment. After all, every derivative is ultimately a function of money. Hence the influence of currency markets on other markets.
1. United States dollar 2. Euro 3. Japanese yen 4. Pound Sterling 5. Australian dollar 6. Swiss franc 7. Canadian dollar 8. Honk Kong dollar 9. Swedish krona 10. New Zealand dollar
The US dollar accounts for over 84% of the daily forex trading volume. The Euro comes in at just under 40%, and the yen is just over 19%. Volume percentages are calculated on a 200% scale due to the cross rate variable. Spread prices for each currency are based off of the degree of forex trading volume.
There have been so many advancements in the forex trading environment with the advent of computerized online trading. In 20 years the whole currency market has evolved out of the old broker dealer network into this giant electronic web of traders, banks, governments, and corporations. Everything functions at light speed. Everything was done over the phone in years past. Now currency traders access the market via computers, cell phones, and touchpads.
At the heart of the FX market is the economic pulse of the various countries around the world. Each month there are reports released with economic data. This is fundamental information that traders take into account before executing their trades. They vary in relative strength and significance. Unemployment, GDP, and Central Bank meetings tend to be the Highest in influence. Whereas, weekly unemployment claims have less of a daily impact on forex trading.
There is a large debate between intellectuals as to the merit of technical trading. Major Universities will preach that fundamental analysis is the only analysis. However, the reality is that more than 80% of traders use and rely on technical analysis. These are also the successful forex trading professionals. Talking head pundits would also have you believed that economic data is the only real information to use and quantify. And market technicians are just charlatans and hocus pocus. Why don’t you decide…?
Look at it like this. A doctor uses an EKG machine to monitor your heart beat, and perform surgery safely and successfully. Technical analysis is the same as the EKG machine. Would you rather have your surgeon operate on you without an EKG reading to watch? The simplest of technical applications will keep traders on the right track and curb their losses. Technical analysis is what it is also. Fundamental analysis is based off of information provided by a human element. This leads to misinformation do to inaccurate accounting, miss representation, complete outright fraud, and the list of goes on. Over the last 20 years there have been so many incidents of companies, banks, and governments releasing completely invalid data. With technical analysis, the information is pure. As long as you’re pricing data is not corrupted.
By far, the forex trading arena offers the most to the biggest group. If you were to ask any trader what they would like in an ideal trading market there would be three main responses…
1. Liquidity 2. Accessibility 3. Trending
These tree variables are a traders dream. A market that is liquid has tight spreads, and is cheaper and more profitable to trade. Easy accessibility is essential to the active trader. Forex trading is conducted 24 hours a day 5 and half days a week. And a trending market is King. This allows for profitable trades to grow. As well as allow the trader to reverse and jump on the band wagon still. To the novice much of this may seem complicated, but it is just foreign to most people. The reality is that the forex trading market is the easiest to follow and understand because of its broad nature. If you decide to trade currencies always do your homework. Make sure you check the economic calendar, forex trading market news, and geopolitical news. Doing this may not make you money, but it will keep your from taking on losses for no reason. Good luck in all of your trading endeavors.