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In the foreign exchange market, the major players are the governments, central banks, commercial and investment banks, and speculators. But, thanks to technology, even an average investor can trade because of wide availability of electronic trading networks.

The forex market operates 24 hours a day and five days a week. According to the Bank for International Settlement, the average currency trading value exceeds $5.3 trillion a day as of 2013, making it the world’s biggest and most liquid market.

The number of currencies being traded is tantamount to day-to-day volatility. Currencies will either rally or decline, resulting to earning or loss. But, the forex market offers various instruments to generate profit and mitigate risk, regardless of the overall market condition. It also enables high leveraged trading with low margin requirements. However, leverage in the currency market is a two-way sword. It can either bolster gains or losses.

Currencies are appraised in pairs (e.g. EUR/USD). When buying and selling currencies simultaneously, a trader would carry off a trade if he or she expects the currency purchased to escalate in value in relation to the other being sold.

Like what was mentioned before, currencies are quoted in pairs. The first currency is the base currency, and the second one is the quote currency. Being the world’s most powerful currency, the US dollar is the base currency by default. The quotes are denoted in units of $1 to the counter currency.

Quotes always entail a bid price and ask price. Bid price refers to the rate a buyer is willing to purchase the base currency. Conversely, ask price pertains to the rate a seller is willing to accept to sell the base currency. The difference between these prices is known as spread, the cost of establishing a position. Major currency pairs are rated to four decimal places. The last digit is called the point or pip.

In the forex market, the margin is a deposit made to a trader’s account, which will cover against losses in the future. Normally, a system will permit up to 100:1 leverage. The system will automatically compute the money needed for current positions and determine the margin availability before the execution of any trade.

Forex trading requires intensive understanding. The market is highly volatile, but it presents a lot of opportunities to generate huge profits. But, remember, the currency market has substantial risk. Traders need to employ effective risk management.