The off exchange retail foreign currency market (FOREX or FX) exists wherever one currency is traded for another. The FOREX market includes trading between central banks, multinational corporations, governments, currency speculators, and other financial markets and institutions and of course, individual currency speculators (FOREX traders). FOREX traders primarily participate via off exchange retail foreign currency brokerages like IBFX / Interbank FX because Off Exchange Retail Foreign Currency is an over-the-counter (OTC) market where brokers and dealers negotiate directly with one another. There is no central exchange or clearing house.

 

The foreign currency market is unique because of:

 

• Its trading volume

• The extreme liquidity of the market

• The large number and variety of traders in the market

• Its geographical dispersion

• Its long trading hours – 24-hours-a-day (except on weekends)

• The variety of factors that affect exchange rates

 

Currencies are traded in pairs. The most commonly traded currencies are called “majors” – The Euro/U.S. Dollar, U.S. Dollar/Japanese Yen, Euro/British Pound and the U.S. Dollar/Swiss Franc.

 

FOREX trading is attractive to many new investors because it offers unparalleled freedoms. A FOREX trader can live and trade anywhere because the market has no physical location and no central exchange. The Market is open 24-hours-a-day, 5.5 days-a-week via a network of banks and corporations. The major market makers, or dealers, are commercial and investment banks and registered futures commission merchants.

 

Foreign currency prices or quotes include a “bid” and an “ask”, much like other financial products. The difference between the bid and the ask is called the “spread,” which is the trader’s cost of the transaction. Currency is generally traded in lots.

 

A standard lot is the equivalent of 100,000 of the base currency.

A micro lot is the equivalent of 100 worth of the base currency.

 

For this reason, currency trading is generally done on leverage. Leverage is the ability to control a large dollar amount of a commodity with a relatively small amount of capital. It is also a tool by which traders can determine the level of risk – and the potential reward – they assume in the market. The basic rule of thumb is, the greater the leverage, the higher potential for loss.

 

In our opinion, the FOREX market can be the perfect market for technical analysis because of the sustained price trends that can be seen over time. Technical analysis examines past price and volume data to forecast future price movements. This type of analysis focuses on charts and indicators to capture major and minor trends and identify buying and selling opportunities. The use of technical analysis does not guarantee the traders success or profitability, of course.