Foreign Exchange Trading Is The Simultaneous Buying Of One Currency And Selling Of Another.

The foreign exchange market (Forex or FX) is the largest financial market in the world with a daily turnover of over $4.0 trillion. Examples of currency trading pairs are Euro/US Dollar (EUR/USD) and US Dollar/Japanese Yen (USD/JPY). Most currency transactions involve the “Majors” – US Dollar, Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

Unlike other financial markets, the foreign exchange market has no physical location and no central exchange. The Forex market operates 24 hours a day through an electronic network of banks, corporations and individual traders. Forex trading begins every day in Sydney, then moves to Tokyo, followed by London and then New York. The major market makers, or dealers, consist of the commercial and investment banks, the exchange traded futures, and registered futures commission merchants.  To get a free live Demo click here.

Foreign Exchange (Forex) Prices

Foreign exchange markets and prices are mainly influenced by international trade flows and investment flows. The FX markets are also influenced, but to a lesser extent, by the same factors that influence the equity and bond markets: economic and political conditions especially interest rates, inflation, and political instability. Those factors usually have only a short-term impact, which makes Forex attractive as it offers some of the diversification necessary to protect against adverse movements in the equity and bond markets.

Foreign Exchange prices, or quotes, include a “Bid” and “Ask” similar to other financial products:

Bid: Price at which Dealer is willing to Buy and Traders can Sell Currency.

Ask: Price at which Dealer will Sell and Traders can Buy Currency.

The difference between the Bid and Ask is called the “Spread“, which is the Trader’s cost of the transaction.

Currencies are usually quoted to four decimal places, such as the Euro/US Dollar trading at 1.2400/1.2403, with the last decimal place referred to as a point or “pip“. A pip for most currencies is 0.0001 of an exchange rate; the one exception is the USD/JPY quote in which each pip is equal to 0.01.

China posted encouraging results this week. Exports rose 5.6 percent beating expectations in October. Analysts had forecasted a 3.2 percent growth. Imports grew less than expected by rising 7.6 percent. Both numbers resulted in a net surplus of $31 billion in October. September's surplus was half of that at $15.2 billion. The market took the Chinese trade data as a suggestion that global demand continues to improve.

The figures support the statements by Chinese Premier Li Keqiang that the Asian economy is on track to reach the 7.5 percent growth target in 2013. A far cry from the 10 percent pace China set in the past three decades, but a sign of the impact the global economic crisis has had on growth.

China is one of the largest consumers of commodities, so good news regarding continued growth benefit producers. China is set to become the number one consumer of gold this year, after India's efforts to curb the metal import. Coal, steel and copper are markets where China leads both as a producer and a consumer.

The focus for the Communist party Plenum will be how to increase internal consumption to cope with the external drop in demand. Urbanization, financial reforms, ,social security, land ownership and pollution are some of the major topics that will be discussed.