Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.

Marginal Trading

Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term “lot” refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.

Ex: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)

When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.

The foreign exchange market is the “place” where    currencies are traded. Currency exchanges are important to everyone all over the world whether they realise it or not. Any produce purchased and brought into the country whether it is a piece of cheese or a car, currencies are exchanged during foreign exchange and business.

The huge demand for foreign exchange is the reason why the Forex market is
the largest and most liquid financial market in the world. From 1997 to the end of 2000, daily trading volume from Forex trading has surged from 5 billion to 1.5 trillion dollars. Despite this unbelievable growth, the foreign exchange market continues to grow at a phenomenal rate. No other financial market has demonstrated this stellar growth in volume.

One unique aspect of this international market is that there is no central market place for currency exchange. Instead, trade is conducted electronically over-thecounter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralised exchange. The market is open 24 hours a day, five and a half days a week.

Currencies are traded worldwide in the major financial centres of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney – across almost every time zone. This means that when the trading day in the U.S. ends, the Forex market begins in Tokyo and Hong Kong. As such, the Forex market can be extremely active any time of the day, with price quotes changing constantly.

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