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- Dianne Phuong Nguyen
One of the largest money markets in the world today is the Forex market. Business people from around the globe meet both in person and online to negotiate different currencies for other currencies in the aim of making big money. But what is Foreign Exchange? How does it work? Whats involved with it? These and many more questions tend to come up when people look into the Forex market. The following is designed to help you discern what this new investment option is, how it works, and how you just might be able to make big bucks by working the system in your favor.
Here are some common questions relating to Forex Trading:
Who can share in the Forex Market?
Basically, only large financial organizations can. This boils down to multi-national banks and companies. There are some allowances for individuals to trade, but this must be done through a broker (and often leaves people open to fraud). There are a few arguements for this. First, the amount of money that is needed to make a decent make money in is usually more than a single individual can invest. Secondly, the way most trades are set up tend to make most of the money “on paper”, which means that while there is profit, it’s not usually profit you can take and directly put into your pocket. These two things alone make the Foreign Exchange fairly unappealing to individuals.
How can you make money in the Forex Market?
It does seem toilsome when you consider that most currency exchanges at only a couple of cents more or less. For a moment consider this, the Euro recently traded at 1.29524 United States dollars. A twenty-nine penny divergence doesn’t look like like that much money, particularly when you look at the fact it’s rare for the value of a currency to shift much more than a couple of cents either way unless some major economic change occurs in one of the countries. That said, the organizations that do these trades tend to interchange money in very voluminous sums. At that size of money, even two or three cent differences can end up being a lot of money. In this way, organizations can make a lot of money by taking part of Foreign Exchange.
Are there any other factors that keep individuals from becoming a trader in the Forex Market?
There are a few factors, yes. The primary reason is in the way currencies are purchased. In order to make their own profit, the people who perform the actual trades charge a certain amount extra beyond just the exchange rate. The more money you can trade at once, the smaller that difference is, until you get to the top tier of trading where the difference is literally thousandths and hundred thousandths of pennies. Most organizations and most individuals can’t trade that much money at once, so the differences that they are charged are much more, which in turn makes the draw of Forex trading less attractive.
What are the most common organizations to take part in Forex trading?
The largest organizations to take part in Forex trading are large banks. Given that they tend to have billions of dollars, they can often access the top tier of Forex trading. After that, it would be Commercial companies and Central banks. These two organizations tend to do the most “on paper” trading, trading over longer periods. After that, it would be investment management firms. These companies tend to exchange currencies more to secure foreign assets for their customers than to make a profit. Lastly, retail brokers who take part in the market on behalf of individuals make up about two per cent of the whole market.
What is the Forex Market?
The Foreign Exchange or Forex market is, at its most basic level, any place where one currency is exchanged for another currency. More specifically, it’s where one country’s currency is exchanged for another country’s currency. An organization, such as a bank or a company, in one country will exchange voluminous amounts of their own country’s currency for another country’s currency in the hopes that the exchange rate for the currencies will change in their favor. When and if they do, the organization will then exchange the foreign currency they have for their own country’s currency and will have made a profit.
Will Forex trading continue into the future?
For the near future, most certainly. One cannot, of course, foretell the future, but with as much money as is being made daily in Forex trading, it is doubtful that most people who are taking part would want to quit. When you add in the fact that many organizations simply cannot drop out of the market since they have so many assets tied up in it, you have a market that doesn’t show any sign of weakening. The only way the Forex market will die any time soon is if one or more of the current major trading countries has a huge economic downfall.
