Understanding The Currency Futures Market

By Robert MacGuffie

The currencies futures market is also known as the foreign exchange market as well as the FX market and the forex market. The modern currency futures market was formed in the early 1970’s and is over thirty years old. The forex market is not based on any investing in any one business or company stock, but in the trading and selling of currencies. Trading the discrepancies in value that occur between two or more nations with different currencies is at the heart of this market.

The daily turnover in the forex market is estimated at $3.98 trillion. This amount is much higher than the money traded daily on the stock market of any one country. When you trade in the forex market you are involved in a worldwide enterprise that involves governments and banks as well as speculators and hedge fund managers.

What is bought and sold on in the currency futures market can be easily liquidated. In the global forex market there are large numbers of buyers and sellers who are willing to trade a particular position and your investment can be turned into cash fairly quickly. A large, global trading volume, high liquidity and 24 hour trading access help to make the FX market extremely popular.

The currency futures market is divided into levels of accessibility. The top tier is known as the interbank market, which is made up of the biggest commercial banks and financial institutions. This top position represents over 50% of the FX market. At this level the spreads between the bids and ask prices are very precise and the divergences are not shared with the investors in the lower tiers.

The various levels of access are determined by the amount of money a particular institution or trader is willing to invest. If a brokerage is trading in large sums they can request a small differential between the bid and ask price. Hedge funds, smaller banks, large multi-national corporations, insurance companies and pension funds make up the lower tiers in a hierarchy that ultimately includes individual investors from the general public.

Again, to highlight the benefits of forex trading remember that:

Forex Trading Is A Global Enterprise and that the currency futures market has global reach

The FX has high liquidity because its trading volume reflects the largest asset class in the world.

The fluctuation in exchange rates offer innumerable profit opportunities.

Low margin requirements increase leverage while helping to decreasing risk.

There are a variety of instruments to control risk exposure.

There are many options for zero commission trading.

While trading in the currency futures market does involve risk, there are a number of strategies that can help an individual protect his or her investment. It is recommended that you work with a broker that not only offers superior trading tools, but gives you a lot of personal attention and support. Some trading platforms provide forums where trader and analyists can share information and compare notes. Take the opportunity to get to know your fellow risk-takers and profit from their experience and expertise.

About the Author: Robert MacGuffie is webmaster at

Currency Futures Market

Source:

isnare.com

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