Forex Trade Tidbits

October 23rd, 3:08 pm by Barbara Zigah

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(eToro Blog) The foreign exchange market is the largest in the world, currently estimated at just shy of $5 trillion in trading activity on an average day. It is destined to grow larger by giant leaps and incredible bounds, with one estimate from Swiss banking firm UBS AG putting it at $10 trillion in less than a decade. While that growth will be driven primarily by pension funds, hedge funds, central banks and insurance companies; individual investors will also play their part, albeit in a significantly smaller role. Analysts don?t believe that there is any global crisis or disruption of international trade which will be able to halt its inexorable expansion and to paraphrase one currency strategist, forex activity is essentially shock-proof.

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It?s all the more surprising that the forex market has grown so large, given that it is a highly concentrated one. Essentially, there are only seven highly-liquid pairs which are driving the currency market?s growth and which account for at least 95% of all forex trading, with the bulk of the remainder made up of their currency crosses. Four of the seven pairs are considered ?majors? while the other three are ?commodity-linked.? Of course, they are the EUR/USD, USD/JPY, GBP/USD and USD/CHF pairs and the AUD/USD, USD/CAD and NZD/USD pairs, respectively.

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Forex is different than other markets, like equities or futures or options trading, because it really has no formal or structured exchange. There are no guarantees, no clearing houses, no AMEX or NYSE and in some cases no arbitration of disputes. It is essentially a market based solely on mutual trust, or as one analyst wrote, the metaphoric handshake. You also get nothing tangible (though that doesn?t preclude invaluable) for your efforts; you can buy and sell forex to your heart?s content but because forex trading is only a speculative market there is no physical exchange of any foreign currency.

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Oddly enough, it works quite well (most of the time), and self-regulation among traders has provided effective control as the participants compete yet cooperate with one another. Nonetheless, forex traders must still rely on their broker to ensure that their trades are appropriately executed. To that end, reputable forex dealers like eToro will ensure that they are properly regulated and licensed.

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Copyright 2012?eToro Blog

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Source: http://www.etoro.com/blog/forex-news/23102012/forex-trade-tidbits/

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