pros and potential cons of trading forex are. The futures market is conducted in a centralized exchange and is less liquid than the forward markets, which are decentralized and exist within the interbank system throughout the world. Besides trading for a profit or yield, currency trading can be used to hedge a stock portfolio. In both cases, traders must know how to map out the timing of their trades through charts, since good timing is the essence of profitable trading. The interbank market is made up of several banks trading with each other around the world. To accomplish this, a trader can buy or sell currencies in the forward or swap markets, at which time the bank will lock in a rate so that the trader knows the exact exchange rate in order to mitigate his or her company's risk. It seems that the discussion of regulation has arisen because of the need to protect the unsophisticated retail trader who has been led to believe that forex trading is a surefire profit-making scheme. This service has been taken up by commercial and investment banks on behalf of their clients, but it has simultaneously provided a speculative environment for trading one currency against another using the internet.
For those with longer-term horizons and larger fund pools, a carry trade may be an appropriate alternative. Foreign exchange is the act of changing one country's currency into another country's currency for a variety of reasons, usually for tourism or commerce. In recent history a trader could own the stock portfolio and short the dollar against another currency such as the Swiss franc or euro. Since the forex market is a 24-hour market, there tends to be a large amount of data that can be used to gauge future price movements. Forex Trading Risks Trading currencies can cause some confusion related to risk due to its complexities. Potential Con: Trading currencies is a "macroeconomic" endeavor. Hence, the foreign exchange markets provide a way to hedge the risk by fixing a rate at which the transaction will be concluded at some time in the future. Currency trading is also promoted as leveraged trading, and therefore, it is easier for a trader to open an account with a small amount of money than is necessary for trading in the stock market. Forex as a Hedge, commercial enterprises doing business in foreign countries are at risk due to fluctuations in the currency value when they have to buy or sell goods or services to another country. Gradually, the banks themselves set up proprietary desks to trade for their own accounts, which was followed by large multinational corporations, hedge funds and high net worth individuals. For the serious and educated retail trader, there is now the opportunity to open accounts at many of the major banks or the larger, more liquid brokers. In today's high-volume market, with between 2 trillion and 3 trillion being traded per day, even the central banks cannot move the market for any length of time without the full coordination and cooperation of other central banks.
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