Foreign exchange currency market or forex market is a huge, developing and liquid round-the-clock financial market. It does not have any central location with lots of buyers and sellers. The trading is generally conducted by telephone or Internet. Banks, large corporations, insurance companies, and other financial institutions use these markets to manage risks connected to fluctuations in currency rates. However for the past years new and new firms are beginning to offer forex services to individual investors. Such forex firms (but not all of them) are regulated by NFA (National Futures Association). Before opening an account with a forex broker, it is recommended to find out if NFA regulates forex activities of this firm. In case of negative answer find out who regulates them as this is one of the most important aspects to pay attention at while choosing forex broker.
Like many other kinds of investments, forex trading bears high level of risk not all investors may use it. While trading forex you should constantly monitor and clear understand currencies correlation, as well as the factors influencing value of the currencies. You need also to fully understand the market and certain features of it.
Foreign currency exchange rates definition. Simply saying, forex rates are the value of one country’s currency against another country’s currency. Let’s take a look at the following example: if you come to Great Britain on vacation, you have to pay for meals, accommodation, fees etc. in British pounds. Taking into account that all your money is in US dollars, you have to exchange some amount of your dollars to British pounds. Let’s suppose that you decide to travel to England. Before leaving, you come to the bank and buy equivalent of British pounds for $1,000. If you receive 575.83 British pounds for $1,000, then $1 is worth 0.57583 British pounds.
This is considered to be the exchange rate to convert dollars to pounds. After staying for a few days in Great Britain, you understand that £575.83 will not be enough for covering all the expenses. Then you come to an England bank and buy another $1,000 equivalent of British pounds. However this time you receive only £567.02 for your $1,000 as the exchange rate to convert dollars to pounds fell from 0.57583 to 0.56702. This means that dollars equivalent become less compared to British pound. On arriving home, you realize that you have British pounds left. You come to the bank and buy US dollars for £100. The bank gives you $168.41; each British pound is worth 1.6841 dollars. This is considered to be the exchange rate to convert pounds to dollars.
However you should mind that the price quoted in the newspapers is different from the price quoted on forex. The reason is that banks and other market participants gain profits from spread that means the difference between buying the currency on one price and selling it on another. After reading this article you have the general understanding of what foreign currency market is and what are currency rates. It is the first step for you to become a successful trader.