An Introduction To The Foreign Exchange Market ? SharesInv.com

By Stuart McPhee
OANDA?s Currency Technical Analyst and Trading Coach and Technical Analyst

The foreign exchange market (also known as forex and FX) facilitates the conversion of one national currency into another and is the world?s largest financial market, with over US$4 trillion being traded every day, on average.

The FX market is a very news driven market and its influences are broader economic information like trade between countries, health of economies and interest rates. Local, regional or world events can cause sudden spikes and falls in prices to occur in seconds. Depending upon the significance of the news, and how closely it is related to a particular currency, an amazing amount of trading activity can occur in a short period of time.

More and more individual traders are now speculating on forex, as various trading platforms over the last ten years have made this market much more accessible to the individual private trader.

Most transactions in foreign exchange markets involve the United States Dollar (or USD), and it is the currency by which most others are quoted against. When a currency exchange is quoted, it must include the two currencies in the transaction as all currency transactions occur in pairs.

The Euro Dollar / US Dollar currency pair, (EURUSD ? commonly referred to as the ?Euro?) is the most actively traded currency pair.

In quoting, there are standard abbreviations that designate the currency, for example:

For example, AUD/USD 1.0550 ? this means that you require 1.0550 USD for every Australian dollar. Another way at looking at the quote is to replace the ?slash? (/) with ?1 equals?. In the same example, 1 AUD equals 1.0550 USD.

As with certain other financial products, there are significant advantages of trading forex. However, it also carries significant risk due to the leverage. Ultimately, just like the value of other trading products, eg. shares, the two things that affect the value of a currency are supply and demand.

However, there are many fundamental influences on supply and demand for a particular currency including interest rates difference between two countries and the level of imports and exports.

Gain access to the FX market through OANDA?s award-winning fxTrade? platform. Visit www.oanda.sg for more information.

DISCLAIMER
Trading in the leveraged over-the-counter market carries a high level of risk and may not be suitable for all investors. You should never put at risk any amount that you cannot afford to lose. More details under: http://www.oanda.sg/legal/risk-warning

OANDA is a provider of innovative foreign exchange trading services and a trusted source of currency data. Its leading online trading platform, fxTrade, introduced a number of firsts to the market place, including immediate execution; instant settlement on trades; trades of any size between one unit and 10 million units and interest calculated by the second. OANDA was the first online provider of comprehensive currency exchange information. OANDA provides all traders with equal access to the same great features: ultra-tight spreads with no hidden fees or commissions, real-time rates with quality execution, advanced trading tools, and dedicated customer support.

The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

Source: http://www.sharesinv.com/articles/2012/12/17/an-introduction-to-the-foreign-exchange-market/

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