Forex - The Most Liquid Market In The World

Since the advent of the freely floating exchange rate system, after the decision by Nixon to remove the Dollar from the Gold Standard, currency valuations became much more volatile. This volatility makes it possible to speculate one currency against another.

Speculators quickly seized the advantage and the largest most liquid markets were born. Not only did the international banks provide the service of exchanging foreign currencies to facilitate tourism and international trade, but they soon discovered that speculating in the values of currencies was a profitable venture for themselves. Banks set up trading desks and were soon the dominant speculators in the forex markets. They traded for their clients and for their own account. Thus the interbank system of trading foreign exchange grew from $500 billion per day to the current level of $3 trillion per day.

For a private trader this offers the advantage of incredible liquidity, particularly in the major currencies such as the Euro Dollar. Although currencies are not traded in a formal exchange environment, (although currency futures are), the largest trading by volume takes place amongst banks in the spot market. The spot market settles every two days and is considered as "on the spot settlement".

However, because the market is not regulated in the traditional sense such as an exchange, traders need to be aware of where they open their accounts. The largest banks are obviously safe, as are the largest market makers. We recommend banks such as Barclays, Deutche Bank, Dukascopy and so on.

For a professional, technical analysis system, one can opt for TradeStation. TradeStation is a publicly traded software company with full brokerage facilities. They are listed on Nasdaq. TradeStation also offers users the ability to trade in Forex. Forex orders can be placed directly through the TradeStation software, which instantly transfers the order flow to Gain Capital in New York. The spreads are very tight and the slippage is minimal.

Some brokers advertise that they do not charge commissions but then their spreads may be wider than you think or slippage may be questionable. There is no free lunch. Always trade with a broker or bank with a solid reputation in the Forex markets.

Selwyn Gishen is an author and forex trader with over 15 years experience in trading and trading psychology. He is the author of a book called "Mind" - how changing your mind can change your life!, available from Lulu.com. He is also the author of "Trading the Forex Markets" - A foundation course for online traders. He is the founder of http://www.ForexNewsandViews.com a new website forum for traders. The course is available online at http://www.fxnewsandviews.com Selwyn is currently doing online speaking arrangements with leading forex brokers.

For more information contact him at fx@fxnewsandviews.com