The FOREX Market – a Basic Overview

For the individual who is considering investing in the FOREX market the first time, this basic introduction and overview will help them understand how it works.

Until recently, it was safe to assume that the Forex market was not a playground for the “little guy” or novice investor as far as investing in foreign currencies was concerned. Characteristically, it had been the realm of the larger financial institutions as well as central banks, corporations, hedge funds, and other wealthy individuals. Generally speaking, the fluctuations in currencies are relatively small, and since most of the paired currencies move in small increments of a penny or less, this equates to a 1% (or less) movement daily.

Leverage is relied upon heavily by investors and speculators in order to increase the size of currency price fluctuations. These factors can be as great as 250:1 in the FOREX market, and since it operates on deep liquidity and around-the-clock time schedules, brokers have been able to make the leverage factor a standard in the industry. High leverage can be extremely risky to say the least. However, the brokers have utilized leverage in order to make the resulting currency fluctuations more meaningful and beneficial to FOREX traders.

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