Stock Market Guide to Investing in Forex
“FOREX” is an acronym for Foreign Exchange Trading; the practice of buying and selling foreign currency on the world’s many foreign exchange markets. Many people will be surprised to know that the FOREX market is by far the largest financial trading market in the world. Based on the total cash value of all trades, over $1.9 trillion is traded every day on global FOREX markets.
Yet, the average person plays very little part in FOREX trading which has historically been the province of large investment banks, very large institutions and corporations, and national central banks. Professional currency speculators also work the FOREX markets, typically playing one currency against the other through vigorous short term buying and selling. The introduction of the Euro at the end of the 20th century effectively took a dozen or so European currencies off the FOREX markets, but the Euro has proven to be a strong and resilient currency that many traders hold as a viable option to the US dollar.
Central banks have long used the FOREX markets as a lever by which to moderate fluctuations in the value of their currencies versus, chiefly, the US dollar. For example, if the Canadian dollar is dropping steeply in value against its US counterpart during the course of a trading day, the Bank of Canada has been known to step in to the market and buy a quantity of Canadian dollars sufficient to stabilize or reverse the trend. Often, the mere hint of intervention by a country’s central bank is enough to affect the value of its currency on FOREX markets.
Although FOREX trading itself is chiefly conducted by large institutions, the “man on the street” is becoming more involved. Dedicated home trading programs devised by companies like Oanda Corporation allow individuals to buy and sell a wide range of foreign currencies from the comfort of their homes or workplaces. Traders can access real-time financial information and news, and view the progress of their trades and investments on an easy to read graphic display.
Foreign currencies, unlike stocks, do not usually vary in value by great degrees, one reason why it is mainly the big players who play the FOREX markets. However, casual traders may see in FOREX trading an extra degree of security, since as yet there has not been a FOREX market crash!