Trading in any investment market is very difficult as evidenced by the fact that most beginning traders lose money. However, success can be found with enough of the right education, practice, and experience. So, what is currency trading and is it right for you?
The currency market, or forex (FX), is the largest investment market in the world and continues to grow annually. On April 2010, the forex market reached $4 trillion in daily average turnover, an increase of 20% since 2007.1
In comparison, there is only $25 billion of daily volume on the New York Stock Exchange (NYSE). The market may be large, but until recently the volume came from professional traders, but as currency trading platforms have improved more retail traders have found forex to be suitable for their investment goals.
KEY TAKEAWAYS
Forex exchanges allow for 24/7 trading in currency pairs, making it the world's largest and most liquid asset market.
While it is the largest market in the world, a relatively small number (~20) of currency pairs are responsible for the majority of volume and activity.
Currencies are traded against one another as pairs (e.g., EUR/USD) and each pair is typically quoted in pips (percentage in points) out to four decimal places.
Currency prices fluctuate based on the economic situation of the countries involved, geopolitical risk and instability, and trade & financial flows, among other factors.
How Does it Work?
Currency trading is a 24-hour market that is only closed from Friday evening to Sunday evening, but the 24-hour trading sessions are misleading. There are three sessions that include the European, Asian and United States trading sessions.
Although there is some overlap in the sessions, the main currencies in each market are traded mostly during those market hours. This means that certain currency pairs will have more volume during certain sessions. Traders who stay with pairs based on the dollar will find the most volume in the U.S. trading session.
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