forex-online-trading

Online Foreign Exchange Trading

Foreign exchange trading involves purchasing one currency by spending (or selling) equivalent amount of another currency; for example purchasing Japanese yen with US dollar. Each transaction is an exchange between a pair of currencies. The online foreign exchange trading facilitates transactions on the spot in which case the exchange rates prevailing at the time of transaction is applicable.

Although this is a simplistic view of online foreign exchange trading, the foreign exchange market is by far the largest of all the markets in the world in terms of amounts involved. The daily average turnover around the world is close to US $ 3 trillion. The market works 24 hours a day (except on weekends). There are many participants in the market including central banks, commercial banks, corporations, institutional investors, hedge funds and private individuals. The private individuals like you and me who participate as retail traders account for about 2 percent of total volume traded. Even this amount comes to staggering US $ 25 – 50 billion turnover every day.

Online foreign exchange trading is of interest to individuals because the market provides tremendous earning opportunity. In this trade there is theoretically unlimited profit potential whereas the loss is limited only to the amount invested. Although stock market and foreign exchange market are often compared, these two markets are quite different. The foreign exchange market does not have headquarters. It does not have controlling institution comparable to stock exchange. The market rates of various currencies are determined by about 4500 leading banks and institutions all over the world.

Most of the transactions in the foreign exchange market – estimated at 95% - are speculative in nature. In this type of transactions there is no physical transfer of currencies. The trader buys a currency not for possessing that currency but for selling it back hopefully at a profit. The trader tries to earn a profit by taking advantage of constant fluctuations in the values of currencies.

Development of web-based technology and internet opened the forex market for retail traders sometime in 1995 – 1996. The online foreign exchange trading was possible only because of this development. Any market consists of people and the collective sentiments of the people have a strong bearing on how the market is going to behave. The trick of succeeding in turbulent markets like forex market is not to get swayed by public sentiments, but rise above it and view it objectively to anticipate the market movement.

The traders in forex market need to keep their emotions under control. They should be guided not by their emotions but by carefully thought-out strategies. Before participating in actual transactions the traders would be well advised to acquire sufficient knowledge – knowledge about how the market operates and how various factors influence the market. Knowledge can help the traders overcome the emotional factor and adopt a rational, objective approach to gain from the market.

I will be posting more articles in this blog.

Sanjay Johari

posted by Sanjay Johari @ 11:54 PM