HOW TO SPOT THE M'S AND W'S FOR TRADING
This chapter offers a brief overview of FOREX. FOREX, which stands for Foreign Exchange, is the global trading of currencies. More than $3.0 trillion in foreign exchange transactions take place each business day, and the volume is increasing steadily.
Until the mid‐1990s the arena was the domain of large banks, governments, and corporations.
At present, it is possible for small speculators to trade online with any of a large number of retail FOREX broker‐dealers using an online trading platform. The most popular currency pair is the EUR/USD—the Eurozone euro against the U.S. dollar.
There is no central clearinghouse for currency trading as there is for stocks or commodity futures. It is the closest thing there is to a pure laissez‐faire market.
The opportunities are enormous but it is a largely unregulated and often cutthroat enterprise. In the United States, retail FOREX is partially regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).
However, with no central clearinghouse, regulation is by definition less robust and effective than in stocks or commodity futures. Regulation is largely limited to seeing that retail brokers meet certain capital requirements and follow good‐practice guidelines.