Foreign Currency Exchange

Written by Michael Federico
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Foreign currency exchange occurs all over the world, twenty-four hours a day. Trading isn't tied to the constraints of the littered floors of the NYSE or the "Merc" in Chicago. It is traded on the Foreign Exchange Market (Forex), an electronic network of companies, banks, brokers, and amateur investors.

Currencies are traded in pairs, with profit loss and gain determined by pair-specific formulas. So, trading the dollar for euros carries risks and benefits different from those involved in trading dollars for yen. Exchange rates between currencies are continually shifting, and therefore, up-to-the-minute conversions are necessary to make educated transactions.

Foreign Currency Exchange and Short Term Trading

There are several aspects of foreign currency exchange that make it appealing to the short-term trader. The sheer size of the market makes it difficult for a single entity to dictate trading patterns, this offers the low-end trader a great opportunity to get involved in the market. Once engaged in trading, the individual enjoys low execution risk and relatively low transaction costs. These benefits, coupled with the unmatched liquidity of foreign currency, make it possible to profit quickly from a trade.

For those unwilling to commit to a long-term investment, or those who don't enjoy the gamble that accompanies the inevitable ups and downs of the traditional market, foreign currency exchange is a viable option. The Forex can thrive in both a bull and a bear market, and this, above all else, is what is drawing many investors away from the Dow and the NASDAQ.


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