|
|
|
|
|
|
 THE ABC OF... |
Playing the grandest market in the world
Big doesn't necessarily mean better but it does have its advantages.
The FX market is by far the grandest and most active market in the world, and today, thanks to the Internet, the everyday trader has 24/7 access to it. Long gone are the days when the banks hogged all the excitement for themselves.
Foreign-exchange trading volume rings in at over $2 trillion each day, dwarfing daily trading volumes on the world's largest sharemarkets. But for traders, there are few markets more risky than the FX market, chiefly because of the leverage involved in taking out a forex contract.
A $1,000 deposit can be leveraged to a whopping $100,000 currency exposure on a particular currency pair. Clearly, when a currency pair bobs up and down on this kind of money, you're looking at some pretty hefty gains and losses.
But the FX market has clear advantages over the sharemarket and bond market. It's a 24-hour market closing for just 47 hours a week from Friday evening in New York until Monday morning in New Zealand, which means that you can get in and out of the market pretty well at any time.
It's also named the most democratic market, since its enormous liquidity prevents any one player from having an undue influence on price - unlike shares, where stock sell-downs by big players can send share prices reeling.
On the flipside, the FX market is impacted by natural business activity, such as the buying and selling activities of importers and exporters, international companies and banks. As these natural currency flows impact the demand and supply for particular currencies, it affects their prices relative to each other. For example, the takeover of an Australian company by a US company, or the purchase of American 747 jets by Qantas will impact the demand for the Australian dollar (AUD) versus the US dollar (USD). These kinds of activities are impossible to predict and can en masse cause the market to move.
Traders looking to get into this most active of markets need to take a step back and get educated first. Many brokers offer free demonstration accounts where you can hone your skills before you take the plunge.
To get things started you can check out our comparison tables.
 Email to a friend
 Print this article
|
|
