Foreign exchange( or forex trading) is the most traded instrument in the world. Roughly
$3 trillion is traded on any given day. Some days, volume can reach
as high as $7 trillion per day. This volume completely swamps the
global stock market.
It is not hard to understand why forex is traded the most. Nobody
needs to buy stocks but we must all deal directly or indirectly with the
foreign exchange (forex trading) world. Global trade is huge. Every time a barrel
of oil is bought, dollars must also be bought by everybody but Americans.
Japanese must change their yen into dollars to buy oil since oil is priced in
dollars. Every time an American buys a Japanese car, dollars are swapped
for yen to buy the car. Every time a kid watches a Disney movie in Poland,
dollars are demanded. Cross-border capital flows for investment contribute
another massive quantity of foreign exchange transactions.
Perhaps the largest component of daily volume is speculation. This is
mainly done by banks and other financial institutions around the world.
Every day, banks trade among themselves looking for speculative profit. In
addition, major banks try other strategies to make money. For example, a
bank will try to find another bank that doesn’t know the correct price for
a currency and make a purchase. Perhaps a large order had come into a
bank that was large enough to change the price of the currency. This piece
of knowledge could create additional profit opportunities for the bank that
knew about the order. This will be discussed later in this chapter. Let me
assume that you know something about investing in general, perhaps in
stocks, and focus on how the forex market is different from other markets.
from : Forex trading
see more article :
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Source : Forex trading
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