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Introduction to Forex Trading

The foreign exchange market is the largest financial market in the world. Approximately 1.9 trillion dollars are traded daily in the foreign exchange market, which means it dwarves the stock market of any country, even the United States, for example.

Because currencies are traded in markets in various countries, currencies can be traded 24 hours, six days a week. The bulk of currency trading takes place in London, with New York coming second and Hong Kong, Japan and Singapore seeing the bulk of currency trading during Asian business hours. The only time when currencies are not trading is after Japan closes for business on Friday, there is a one day window before Europe is open for business.

Currency markets are also one of the most volatile markets. One of the reasons for this is the sheer size of the market, and its sensitivity to so many variables. Whereas a company trading on the stock market is susceptible to its own news and the health of the economy where it does business, there are many more variables that can affect currencies. International politics, enthusiasm for one currency that causes another to weaken even though there's no apparent reason for it, weather, and war there is a virtually endless list.

Most traders buying and selling currency in the foreign exchange market are doing so on a speculative basis. Like stock market traders, they buy currencies they think will get stronger and sell the ones they think will get weaker. (Associated Foreign Exchange does NOT engage in speculation of this kind. AFEX buys and sells foreign currency strictly based on its transactional needs) Most of this speculative activity is undertaken by investment companies, banks and brokerages. The high volume of currency trading means rates change every 4.8 seconds. Companies that buy and sell foreign currency as a part of their normal business activities make up a very small percentage of currency trading.

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