How Do Forex Markets Work? An FXDD primer.


FXDD is a leader in online currency trading and investor education. Founded in 2002, FXDD is dedicated to providing superior customer service to individual and institutional traders. FXDD is headquartered in New York City’s World Trade Center. FXDD Europe is the firm’s global operation, which is located in Malta. Additionally, the firm is active in the Middle Eastern market through FXDD Arabic. FXDD provides services to individual and institutional traders, hedge funds, commercial entities, brokerage firms and money managers around the world.

FXDD’s goal is to cultivate informed traders. An understanding of how the foreign exchange market works is key for FXDD’s traders.

The foreign exchange market or Forex, as FXDD and other brokers refer to it, is the exchange of international currencies in a decentralized global trading environment. FXDD wants traders to understand the potential of trading currencies in Forex, a market where a wide range of different buyers and sellers trade around the clock, with the exception of weekends. FXDD’s traders speculate price based on economic and political characteristics and key technical levels of support that determine the relative values of different currencies.

FXDD offers tools that help traders understand the complexities of the foreign exchange market, and the market’s role in assisting international trade. FXDD can potentially help a business in the United States, for example, to import goods from Japan and pay Yen, even though that company’s income is in United States Dollars.

FXDD works with traders who, in a typical foreign exchange transaction, purchase a certain amount of one currency by paying for it using another currency. FXDD has innovated the modern foreign exchange market, which formed during the 1970s after three decades of government restrictions on foreign exchange transactions. Countries at this time transitioned to floating exchange rates from the previous exchange rate regime, which remained fixed.

FXDD understands that there is very little cross-border regulation in a landscape where trades are not cleared in a unified or central exchange, making it all the more important for traders to understand the complexities of Forex. FXDD provides support in the complex interconnected marketplaces where over-the-counter (OTC) currencies and different instruments are traded.

Like other asset classes, Forex includes some currency pairs that are more liquid than others. The most liquid currencies offered by FXDD include those from economically and politically stable countries. FXDD offers the G7 countries’ currencies for trading, which are considered very liquid.

FXDD has noted that today’s most liquid currencies, following the unification of the European currencies, include the US Dollar, the Japanese Yen, the British Pound, the Euro, and the Canadian Dollar. FXDD agrees with estimates that state these currencies comprise more than 80% of the daily foreign exchange volume.

FXDD is involved in currency trading that happens continuously during normal market hours throughout the day. FXDD support is available from the beginning of the trading day in Australia, into the trading session across Europe and North America, and as the session returns to Asia, five days a week.

Through FXDD and other similar agents, currencies are traded against one another. Clients can trade a currency pair, which is the trading product in Forex through FXDD. FXDD, and the industry in general, refers to a pair as a combination of two currencies, such as EURUSD or EUR/USD, where EUR and USD are the three-letter code of the currencies involved – Euro and US Dollar. The first currency (EUR) is the base currency that is quoted relative to the second currency (USD), called the counter currency (or quote currency).

As an example, if the price of EURUSD (EUR/USD) is 1.6325, then one unit of euro would equal 1.6325 US dollars. FXDD follows the market convention, which is to quote most exchange rates against the USD with the US dollar as the base.

FXDD and the Forex market in general involve the US Dollar in more transactions than any other currency. FXDD has witnessed a significant increase in trades involving the euro since the currency’s creation in January 1999. FXDD concedes that just how long the foreign exchange market will remain dollar-centered is open to debate.

Many clients who trade with FXDD prefer to trade in Forex because they believe that it is nearly impossible for any one person or group of investors to gain an unfair advantage. With an estimated 4 trillion dollars daily volume, FXDD agrees that fears of market manipulation can be eliminated. This feeling of fairness is a strong part of the appeal to many of FXDD’s traders who trade in Forex.

It is important to note that the factors that make Forex attractive also make it difficult to succeed.  FXDD always wants its traders to understand this fact; the Forex trader must make a profit greater than the bid ask spread in order to succeed in the long term. FXDD also wants to remind its investors of other advantages including lower commission and higher leverage, making Forex a good place for the well-trained investor who has the right support and tools in place.

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