How to Forex

The foreign exchange or FOREX has long been the domain of large financial institutions and hedge-fund managers. Only these parties had the necessary capital, access and information to trade effectively on this market. The internet changed all that. Now, individuals can access the largest financial market in the world, but the FOREX is not like other markets. It can appear to be as wild as the American west at the turn of the century. Investors who are new to the FOREX market can find themselves overwhelmed.

The Foreign Exchange has no governing body and no written rules and regulations. This is quite different from traditional stock exchanges that have strict rules and regulations. Without a binding arbitration agreement, any trades that occur are based on little more than a gentleman’s agreement between parties. Billions of dollars are at stake, and the only thing assuring obligations will be met is a handshake.

Written rules and regulations ensure that stock markets proceed at an ordered and measured pace. This is not the case in the FOREX. Lack of explicit rules and regulations means that traders can make whatever moves or take whatever positions they please. There are no limits. Even insider trading is permitted.

This lack of a ruling body or set rules and regulations leads some to believe that the Foreign Exchange is little more than an anarchy. This is not entirely accurate. The FOREX is a true free market. It is self-regulated, quite rigidly. These regulations are simply not written down, and there is no governing body to pass judgment. The market takes care of that. The fact that the FOREX trades 24 hours a day and there are rarely gaps in price indicates that this system is quite efficient.

Investors considering entering the Foreign Exchange market are often shocked when they realize there are no commissions. The FOREX is a principals only market. If a dealer assists an individual in making a trade, the dealer earns his money by taking advantage of the bid-ask price spread. Once the bid-ask price spread clears, the profit is all the investors.

What actually trades on the FOREX? What underlying assets are being traded? The answer is simple. Nothing tangible is traded. It is all speculation. This goes against everything most have been taught about the world of investing. A trade on the FOREX market is nothing more than an entry on a computer, a speculation on what the market will do.

To understand how the Foreign Exchange operates, one must examine how it began. It began as a way for multinational corporations to ensure that when they were required to pay a debt or receive money owed that was not in their native currency they were getting a fair value. Today, less than 20 percent of all trades on the FOREX are this type of transaction. The remainder of the daily trades is speculative in nature. Large institutions and individual traders seek to prove their knowledge of economics and market fluctuations by making bets either on or against a currency.

Entering the FOREX market is certainly an intriguing proposition for the individual trader. Learn more about the basis of FOREX and gain more insight by visiting Lucror FX at www.lucrorfx.com today.

 

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