The Foreign Exchange market (Forex) is truly the largest exchange in the world. The amount of dollars traded on the Forex market on a daily basis is in the trillions. Most of this currency trading takes place between between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. However, individual traders are starting to get in the mix, using internet discount brokers such as Etrade to participate in the currency exchange market.
There is no central exchange or meeting place for the Forex. All trading is done over computer networks between traders in different parts of the world. Also, unlike the stock market, the foreign exchange market is open 24 hours per day, because it is a global market. A trader in Hong Kong may be exchanging currency with a trader in Australia while an American trader is sleeping.
There are several different markets within the Forex exchange system. First, there is the spot market. The spot market deals with trades that are based on the current values of currencies. One person trades a certain amount of currency with another trader in exchange for an equivalent amount of a different foreign currency. Spot trades take two days for settlement.
The other two types of foreign exchange markets are the forward and futures markets. In the forward market, the buyer and seller agree on an exchange rate and a transaction date is set for a specific time in the future, at which point the trade is executed regardless of what the rates are at that time. On the futures market, futures contracts are bought and sold based upon a standard contract size and maturity date. Futures trades take place on public commodities markets.
A currency quote is listed differently from a stock quote. Stocks are quoted in terms of price per share. Currency exchange prices are listed as either a direct quote or an indirect quote. A direct quote uses the domestic currency as the base and the foreign currency as the quote. An indirect quote works the exact opposite way.
So, if you were to view a quote in an American newspaper that said USD/JPY = 75, that would be a direct quote and would mean that $1 of U.S. currency is equal to 75 Japanese yen. If that same quote appeared in that same American newspaper and was listed as JPY/USD = 0.013, that would be an example of an indirect quote.
As with stock prices, currency exchange prices have a bid and ask spread. The current bid is the amount of foreign currency that someone is willing to spend in order to buy $1 U.S. base currency. The ask is the amount of foreign currency that someone is demanding in order to be willing to sell $1 U.S. base currency.
The Forex markets are generally considered to be less volatile than then stock market because within the course of a trading day, it is highly unlikely for the value of a single currency to move all that much. With equities, it is not uncommon for a trader to buy a stock, and then a negative press release causes the stock to lose considerable value within a day or even a couple of hours. Sometimes, however, the Forex can be volatile. If there is a significant economic or political development with a certain country, the currency of that country can lose value quickly.
There is a higher degree of liquidity on the currency exchange then there is on the stock exchange because the currency exchange is open 24 hours per day and because the very nature of currency exchange is to bet on when certain currencies will go up or down; so, it is easy to sell your position in a certain currency even when the value of that money is going down. A plummeting stock is more difficult to unload, but not impossible.
If you want to begin currency tranding, try to set aside some money and open an account with an online broker. Start slowly, then as you get the hang of it, work your way up to larger trades and higher volume. However, do not gamble your nest egg on currency trading because inexperienced traders can lose everything they have rather quickly in spite of the relative safety of the Forex market.
A Stock Broker is the most harried man in a hurry; buy and sell are his watchwords. With the advent of the internet revolution, electronic media has taken over majority of the human functions related to stock dealings. Stock market trading is not an ordinary venture. It builds and breaks the investor at the most unsuspected moment. The wily individual with a will to grow succeeds in stock market trade. Generally, an individual with the sixth sense reaps the golden harvest in this business.
A stockbroker is an individual who buys and sells shares of Companies, on instructions to so by other people or Companies. A fixed commission is charged on the transactions. The objective of the stockbroker is simple and direct. To earn profit, in the process of buying and selling of the stocks! This is mainly done through the process of online trading of stocks.
Computers have silenced to some extent the noise that was the highlight in a stock exchange during the trading hours. A first time visitor to the stock exchange will be awestruck with the scene in front of him. One will not be able to make out the meanings of shouts and counter-shouts happening over there. It seems, the brokers are willing for physical fights! But they fight for great cause-earning money! That verbal slang produces either loss or gain in millions, within a short duration.
To be registered as a broker, the academic qualifying standards vary from country to country. In USA, the prospective candidate must pass the General Securities Representative Examination. In UK, brokers need to make the SII (Securities and Investment Institute link title) Certificate in Securities. All transactions in a Stock Exchange are done through brokers. This institution is not a shopping mall where one may walk in and engage in trade. Two authorized brokers deal with each other to complete the transaction desired by you. The broker who buys the stocks for you and the broker who sells the stocks intended to be purchased by you.
Broadly, stock broking services can be classified in to three categories:
Execution: the broker will go by the instructions of the client either to buy or sell.
Advisory service: expert advice is tendered as for buying and selling of stocks, but the final decision related to buying or selling is taken by the investor.
Discretionary dealing: the broker first ascertains the objectives of the client's investment, the long-term and short term perspectives of financial gains and on the basis of such discussions, takes the final decision for trading on behalf of the client. His actions are supposed to be in the best interest of the client.
The scopes of activities of the broker have considerably grown, from all directions, like the octopus. The area of mutual funds is of paramount interest to a class of clients, in which the broker is expected to possess specialized knowledge.
In USA the history of stocks, goes back to the 1790s when the first Exchange was established. New York City is the hub of stock-related activities. With advent of online stock investing and trading, the personal contacts with the stock broking firm are minimal. Some of the top level brokers and firms are Merrill Lynch, Morgan Stanley, Paine Webber & Company.
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