Short for Foreign (currency) Exchange, Forex is the world’s biggest market for trading in currencies. As much as 2 trillion US dollars worth of currency are traded on the Forex on a daily basis. Compare this with the approximately 25 million US dollars traded on the NYSE and you’ll get the picture - Forex is huge.

So what is Forex all about? Simply put, Forex entails buying one currency, let’s say Turkish Lira, and selling another, say US Dollars. In Forex, currencies are always traded and quoted in pairs. The exchange is made through a broker.

Just like the stock market where you are investing in a company, with Forex you are in a way investing in a country. If your company is a success, the value of your stock goes up. Much the same principle is at work in Forex. If the economy of the country whose currency you are trading is robust, the value of that currency will also go up - and you can then sell it for a profit.

Unlike stock markets, there is no “trading pit” in the world of Forex. Forex operates through the internet and other electronic communications and runs 24 hours a day, 5 days a week.

It has only been in the last several years that the Forex has been open to the average person to invest in. The Forex market itself has been around since 1971, but for most of its history only large companies and a few very wealthy individuals possessed the resources to be able to trade in foreign currency. Today however, anyone with a high speed internet connection and a small initial investment (as low as 50 US dollars) can get in on the Forex market.

The seven most commonly traded currencies on the Forex market are U.S. Dollars (USD), Euros (EUR), Japanese Yen (JPY), UK Pounds (GBP), Swiss Francs (CHF), Canadian Dollars (CAD) and Australian Dollars (AUD). Foreign currencies are identified by means of a three letter code. The first two letters stand for the country, while the last letter identifies the nation in question’s currency.

For example:-
USD: U.S. = United States, D = Dollars.
GBP: GB = United Kingdom (Great Britain), P = Pounds.

At any given time, business is going on somewhere in the world. Global business never sleeps, and neither does Forex. This can be beneficial to you - you can trade on the Forex market any time that is convenient to you.

There are seven currencies on the Forex which are called Major Currencies, due to their being the most heavily traded currencies on the market. The biggest four are, in order: U.S. Dollars (USD), Euros (EUR), Japanese Yen (JPY), and UK Pounds (GBP). The remaining three are Swiss Francs (CHF), Canadian Dollars (CAD) and Australian Dollars (AUD).

Advantages Of Forex Trading

There are a few advantages which the Forex trader enjoys which those who trade in the stock market do not.

1.Unlike with stock brokers, the investor does not pay commissions, per se, to the broker. Instead, the dealers in Forex trading receive part of the “spread” (that is to say, the difference) between the buying and selling price of currency. This is generally a very small amount per trade; a fraction of a percent.

2.You can trade on the Forex market any time which is convenient for you, unlike the stock market - it is closed only on weekends, from 5pm Eastern time on Fridays to 12AM on Mondays.

3.As opposed to the stock market, it is nearly impossible for companies or individual investors to manipulate the Forex market. The volume of Forex trading each and every day prevents any one actor from having undue influence. We all know of instances of the stock market being artificially influenced by unscrupulous persons and companies however.

4.Forex trading can be done with borrowed capital, meaning that you need not have hundreds of thousands in liquid assets to trade currency in large numbers. This concept is called Margin Trading. A small amount of your own capital (less than 5 percent) can be used to leverage a large chunk of borrowed assets, which may then be invested. Forex is traded in what is called lots, the normal size of a lot being 100,000 US dollars. Depending on the dealer with whom you deal you may be able to trade is smaller amounts, these are known as mini-lots or micro-lots.

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This article is part of my ongoing evaluation of ForexGen’s Forex System Selector, a web based automated
trading tool that allows the user to select one or more trading systems, and
have them automatically traded against an account.

This is running against a one month demo account, which is funded with
$100,000.  Previous articles have given an overview of the product and the
first trades.  This article provides an update on trading performance to
date.

In terms of the operational smoothness of the system, I can report that it
continues to operate flawlessly.  I am taking note of this because I have
tried several other products that were unstable and continually lost server
connectivity.  The fact that this product is web based, and on ForexGen’s
own server means that connectivity to ForexGen’s quotes and trade execution
engine is well controlled.

The trading performance to date is fairly disappointing, but not entirely
unexpected. In previous postings, I noted that the performance of the trading
models will make or break this product.  I believe that I have chosen some
of the best and most conservative models, but to date (in the last weeks), one
model (which has been responsible for all 4 trades) has lost 116 pips, which is
around 2.3% of the trading capital.

One trade, which uses a different model is currently open, and is down around
22 pips at present on the CHF/JPY pair (long)

The ECB's and BOE's rate decisions puts more wind to the back of EUR/GBP!

The Eurozone and the U.K. economies continue to diverge.

For years and years, these two economies followed each other up and down in "lock step". Then the credit/sub-prime crisis hit. This pushed the U.K. economy lower as they experienced the same things that America experienced: Hedge fund blow ups, banks struggling, housing prices falling, etc.

On the other hand, many other European banks didn't have as much exposure to "sub-prime" as did the "financial epicenter", the U.K.

So as these economies "de-linked" and continue to diverge, it's produced a heck of an uptrend in the EUR/GBP pair. Click on the chart to enlarge it below.

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Those who may have hoped for a recovery in the US dollar have been sorely disappointed. The greenback hit a record low against the Euro and it will just be a matter of time before the EUR/USD hits 1.60. Before you know it, we’ll be talking about the possibility of one Euro being worth 2 US dollars. Although this may be far fetched, who would have thought that the Swiss franc would be worth more than a US dollar?

Although the once mighty greenback faces long term pressures such as a depressed labor market that is expected to deteriorate further and the strong possibility of another contraction in retail sales, the latest round of dollar weakness was actually triggered by the following:

1) News that Lehman Brothers liquidated 3 of its investment funds due to “market disruptions.”

2) Concerns that the usually stubborn ECB President will hold his ground on inflationary pressures, which he did. Eurozone interest rates remain at 6 year highs despite clear signs of slowing growth.

3) Strong Eurozone and UK Economic Data - French and Italian industrial production both beat expectations while the UK trade deficit narrowed.

The dollar continued to remain under pressure as the trade deficit increased in the month of February. Even though everyone was looking for the weaker dollar to help boost trade, I forecasted an increase in the deficit because the previous drop in the ISM manufacturing index told us that it would be weak (Forecasting News)

Jobless claims also dropped sharply but the improvement is primarily due to the Easter Calendar effect. I still expect claims for unemployment to rise especially since continuing claims remain at very high levels.

Not only is the US dollar trading at a record low against the Euro, but it also slipped below 7 Chinese Yuan. With this big psychological barrier breached, the G7’s criticism towards China’s currency regime will be limited.

Nothing has changed and if anything, ECB President Trichet has confirmed his hawkishness. US retail sales are due for release next week and with Linens ‘n Things joining Domain, Fortunoff, and Sharper Image in filing for bankruptcy protection, consumer spending will contract for another month. Crude oil and gasoline prices have also hit a record high which is going to hurt consumer spending further.

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Whether or not you are aware of it, you already play a role in currency trading. The simple fact that you have money in your pocket makes you an investor in a nation's currency. By holding US Dollars, for example, you have elected not to hold the currencies of other nations. When a currency is traded, the transaction is carried out on the Foreign Exchange market (also referred to as the Forex or FX market). The Forex market is the largest financial market in the world, with over $1.9 trillion changing hands every day!

Unlike other financial markets that operate at a centralized location (i.e., the stock exchange), the worldwide Forex market does not have a central location. It is a global electronic network of banks, financial institutions and individual Forex traders, all involved in the buying and selling of national currencies. A major feature of the Forex market is that it operates 24 hours a day, corresponding to the opening and closing of financial centers in countries all across the world. At any time, in any location, there are buyers and sellers, making the Forex market the most liquid market in the world.

Traditionally, access to the Forex market has been made available only to banks and other large financial institutions. However, with advances in technology over the years along with the industry's high leverage options, the Forex market is now available to money managers and individual Forex traders.

With some initial capital (as low as $200 with CMS Forex), and a computer with an internet connection you can become a participant in this global and liquid financial market.