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Foreign Exchange Market Background
The Foreign Exchange market refers to the "Forex" or "FX" market, it is the
largest financial market in the world, with a daily average turnover of about
US$1.5 trillion. In comparison, the daily volume of the New York Stock
Exchange is about US$30 billion per day. Market participants range from large
multinational corporations, global money managers, registered dealers,
international money brokers, and futures and options traders, to private
speculators.
There are 3 main reasons to participate in forex trading:
1. Forex trading can be used to facilitate an actual transaction. This
happens when international
corporations convert profits made in foreign currencies into their domestic
currency.
2. The second is corporate treasurers and money managers get involved in
forex trading in order to hedge against unwanted exposure to future price movements
in the currency market. This is to reduce the risk of high fluctuation of
foreign currency that will eat into the profits of any foreign stock gains at
that country.
3. The third and more popular reason is speculation for profit. As you know,
forex trading offers up to 1:400 leverage. So, no doubt that today it is
estimated less than 5% of all trading in the forex market is
actually
facilitating a true commercial transaction. But the real motive is to make
profits
using the high leverage power provided in forex trading.
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