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The Complete Guide to Futures Trading: What You Need to Know about the Risks and Rewards by Lind-Waldock

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CHAPTER 10

Forex

Another Opportunity for Traders

In addition to the rapid growth of trading in the electronic stock index futures markets, one of the hottest new trading venues in recent years has been the development of trading in cash currencies or the foreign exchange market (more commonly known as the forex or just FX markets). With the prominent role of the U.S. dollar in the world forex market, in interest rates, and in the pricing of many other markets such as gold, oil, grains, and soybeans, fluctuations in the value of currencies against the dollar have provided attractive opportunities for traders for a number of years.

The ability of individual traders to participate in this market has expanded greatly with the establishment of a number of new cash forex firms since the late 1990s, thanks to new regulations and advances in technology that make trading and record keeping on a smaller scale possible. Some of these firms have many of the same regulatory requirements as futures and options brokerage firms. However, there are some important differences, particularly because cash forex firms do not trade on an exchange. Therefore, forex trading is worthy of a chapter of its own in any book on trading.

WHAT IS THE FOREX MARKET?

If the world existed with a single currency, there would be no need for a foreign exchange market. But that is not the case; most nations have their own national currencies.

The forex market plays the key role of providing the mechanism for making payments ...

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