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What is Foreign Exchange?
Foreign Exchange (FX or Forex)is the largest financial market in the world. It is estimated that over 10 times as much money is traded in FX markets each day than all of the equity markets in the world combined. The UK is the centre of the FX world with over 30% of the global turnover going through London. FX trades are carried out by a wide selection of institutions and individuals including central banks, governments, large banks and currency speculators.
The FX market is unique thanks to a number of factors. Firstly the huge volume of trades that occurs leads to a highly liquid market place. This is then coupled with the fact that the FX market is open 24 hours a day during the week and is used by a large number of institutions from all over the world.
The private investor can tap into this market in a number of ways but the most simple will be to use an online company to trade in currency. Most currency brokers work by providing spread and so there are generally no commission charges.
Top Tips:
- Many of the online currency brokers allow for the investor to buy in margin. This make the trade much more similar to spread betting and so be aware that the risk is much higher than if you do not use margin trading.
- There are many factors involved in the exchange rates. It is important t understand the effect that things like interest rates will have but understand that it is not simple to predict the market.