[Music] the foreign exchange or forex market is the world's largest financial market the forex market plays a vital role in the global economy every day trillions of dollars are exchanged from one currency to another currency exchange is essential for international business and the forex market makes this happen forex market participants include governments businesses and of course investors governments use the forex market to implement policies for example when conducting business with another country whether it's borrowing money lending money or offering aid a country needs to convert its currency into another foreign currency businesses can participate in the forex market to facilitate international trade businesses require the forex market to convert payments for goods and services bought overseas or to exchange payments from international customers into their preferred currency and advanced investors use the forex market to speculate on changes in currency prices currency prices change almost constantly during the week because the forex market is open 24 hours a day excluding weekends during the week it has to be open around the clock because of the global nature of the economy investors profit when they buy a currency and its price increases investors can also sell or short a currency in anticipation of a price decrease currencies trade in two pairs which means the value of one currency is always stated relative to another currency the two-sided nature of pairs is a little confusing at first but in practice it's quite simple let's look at an example trade using the euro US dollar currency pair even though there are two currencies involved the pair itself acts like a single entity similar to a stock or commodity let's suppose that an investor thinks Europe's economy is going to grow faster than the United States and as a result she thinks the euro will strengthen against the US dollar she can buy the euro US dollar pair to speculate on her assumption if the pair Rises she'll make money conversely if the pair falls she'll experience a loss investors buy and sell currency pairs using margin the process of buying and selling investments with margin is much different than buying or selling an investment like a stock margin is borrowed money used to purchase securities in a margin account the amount of margin you'll need varies between currency pairs and the size of a trade currency pairs typically trade in specific quantities known as Lots there are several different lot sizes but the two most common are standard and mini the margin requirements for mini Lots are usually around $100 and standard Lots are around $1000 these margins might seem like small dollar amounts but it's important to understand that the Lots are highly leveraged leverage is using a small amount of money to control a very large amount of currency most Forex investors buy and sell currency pairs using leverage in fact leverage is a key feature of this market the leverage associated with currency pairs is one of the biggest benefits of the forex market but it's also one of the biggest risks leverage gives investors the potential to make large profits or large losses that's because losses from investments using leverage can grow exponentially and spiral out of control but if investors manage risk and limit leverage they can possibly capture the benefits of forex investing these benefits include the ability to trade 24 hours a day and capitalize on different market trends as stated earlier the forex market is by far the world's largest financial market with trillions of dollars changing hands every day the sheer size of the forex market means it can influence other asset classes such as stocks bonds and commodities for example if the US dollar experiences a downtick it impacts commodities because they're typically priced in u.
s.
dollars this in turn raises the costs of goods and is inflationary as a result interest rates may rise causing bond prices to fall all of this can impact the stock market as you can see one change in the forex market can have a ripple effect across several markets this is just one example of how the forex market can influence other asset classes because the forex market is the world's largest financial market it sets the foundation for how other asset classes perform the forex markets widespread influence may appeal to investors who are interested in global economics these investors like learning about other countries their currencies how these pieces all fit together and how the global economy works investors who are less interested in learning about connections between various global markets might consider a less risky method of forex investing such as currency exchange traded funds or ETFs these funds can be a less risky way to invest in a currency and can potentially be an effective way to diversify your portfolio but whether you are interested in trading the forex market or buying currency ETFs it's important that you learn more before making a trade and we are here to help you every step along the way take control of your financial future today with premier education brought to you by invest tools from TD Ameritrade holding corporation.
