Frustrated Trader?
Here’s a Forex Primer
By Darrell Jobman, an acknowledged authority and writer on financial markets for more than 35 years*

Are you tired of the vagaries of stocks or the volatility of futures, such as energy or gold? If so, you might be a candidate for the largest traded “market” in the world. It’s not the U.S., Japanese or European stock markets, but the Foreign Exchange. The Foreign Exchange market is also known as Forex, FX or the cash currency market.

Speculators can and do trade this huge market, where nearly $2 trillion can change hands everyday, far exceeding the amount traded on all of the world’s stock exchanges combined. Traders and speculators in the spot market account for approximately 37 percent of the Forex activity, with another 43 percent involved in swaps and 20 percent in options and forwards.

The main function of the Foreign Exchange market is to provide the mechanism for making cross-border payments and determining exchange rates between currencies. A Forex trade is executed through the simultaneous buying of one currency and selling of another (currency pair). Although most currencies are tradable, the U.S. dollar and four other currencies account for most of the Forex trading volume: Euro ( EUR/USD), Yen (USD/JPY), British pound or cable (GBP/USD) and Swiss franc (USD/CHF) (see Figure 1).