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Currency Trading – A Beginners Overview

There was a time that, when you say currency trading; the first thing that most people will think is that this is the domain of large financial institutions. That day is over; right now anyone with interest and with an access to the market through technologies like the internet can participate. Are you one of those who are interested to dip your fingers in the wild world of trading? If you are mesmerized by currency markets and want to copy the lifestyle of millionaires who profited from dealing these currencies, then here is a good little currency trading guide.

In this form of trading, any place can be considered as your trading floor. There is no regulated exchange to speak of, as compared to the regulated exchange where futures and stock trading can happen. In currency trading, there is no identified central governing agency that can guarantee the trades and can act as the mediator once something wrong happens on the trades. What happens is that traders are left to fend for themselves and they will trade with each other based upon the credit requirements or the financial standing of other trader. As they say, the only thing that can seal the deal between two players in trade is the proverbial handshake.

At first glance, this informal set-up where the traders can leave other traders of other markets bewildered, confused and frustrated. They may even say that this informal set-up will lead to nothing and will lead to the eventual collapse of what we refer to as currency trading. But for years now, this so-called informal market is still there thus this says a lot about the informal set-up. This means that the informal set-up and self-regulation works.

Indivdual traders can also take part of this market by using their own trading platform through currency trading brokers who act as a window into the currency markets for their clients.

Another interesting feature of this trading is that players actually sell and buy nothing. This is true because the market is speculative in nature, and trades are opened and closed on computers. The market still exists in order to provide an avenue for large players like corporations in order for them to trade the currencies on a continuous basis.

For example, some business organizations need to buy currencies in order to cover the cost of the transactions incurred when doing business with other businesses and organizations from other countries. But these transactions are said to be just a fraction of the market, and still the bulk of the market are still considered as speculative in nature as participated by large participants like financial institutions who hedge and speculate.

Though every country is represented by their own currencies and there are hundreds of countries out there, only a few are traded heavily in the market. These are called the majors which include the EUR/USD, the USD/JPY, the GBP/USD and the USD/CHF. These four majors are backed by the commodity pairs of AUD/US, the USD/CAD and the NZD/USD. These currencies are the most active in currency trading, accounting to almost 95 percent of the trades made every day.

It has to be said, that fortunes can be made or list in the currency markets, so its best to learn how to invest wisely, before you put up any real capital.

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