The Foreign Exchange Market is the worlds leading global financial market. Commonly referred to as the Forex markets, or FX markets, it facilitates the exchange of several trillion dollars worth of currencies per day.

Recent estimates show the daily traded volume to be close to $4 trillion dollars per day. To put this into perspective, this equates to more than three times the combined value traded on all the words stock markets.

What Is Traded On The Forex market?

The simple answer is money, or more specifically different currencies.

Forex trading is the simultaneous buying of one currency and the selling of another with a view to profiting rom the difference.

In simple terms, if the currency bought appreciates against the currency sold when the deal is closed, the forex trader makes money. Conversely if the currency has depreciated during this time then the trader will lose money.

Foreign Currencies are bought and sold through a broker or dealer much like Stocks and Shares. However this form of trading differs in that you don't actually purchase a physical asset such as a share or coupon. Instead you are simply speculating on the differential in value of the two currencies quoted.

When trading foreign currencies you will notice that they are quoted against each other. The first currency is the base currency. This is in effect the currency that you buying. The second currency is the currency you are in effect selling. For example, you can exchange the British Pound for the US Dollar (GBP/USD) or the Euro for the US Dollar (EUR/USD).

Why are Currencies traded?

The exchange of currencies has long been practiced throughout history. Traditionally currencies have been exchanged between regions to facilitate trade, investment and regional movement.

Increasingly however, currencies are being used purely for speculation and investment purposes. The ability to trade on online has seen a huge growth in the number of retail investors who are drawn to this way of trading. You may for example, be reading this article as one of the many traditional equity investors who are now turning to Forex trading as part of their portfolio.

Retail Forex traders now make up an increasingly large portion of the market. Traders will speculate on currency movements in much the same way that a stock trader would speculate on future share price movements. Different trading strategies are employed with both very short term (Intraday) and long term (Strategic) movements speculated on in an attempt to profit.

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