Facts

• Due to increasing globalization, ForEx trading is one of the largest and fastest-growing sectors in the financial market. Traders internationally use the rates posted by behemoth corporations such as Bloomberg, which are verified by the International Monetary Fund (IMF). The IMF is a league of 186 countries that ensures the stability of exchange rates and values international currencies, according to Imf.org.
  
  

History

• After World War II, the United States along with other nations decided to create a new institution to appreciate the value of trading goods. This decision arose from the fact that hyperinflation of currency caused significant disruption in trading and ultimately crashed markets. Several nations adopted the Bretton Woods System, which valued one ounce of gold to a specific number of USD and then valued the currencies of other nations to this prevailing approximation. This adoption was relatively reliable at first as the USD remained stable; however, in the 1970s as the USD weakened and foreign economies expanded, the system was demolished and international currencies became interdependent on speculation based off of consensus.
  
  

Function

• According to Investopedia, there are two main ForEx trading options: the "call/put" option that resembles conventional stock options and the "single-payment-option-trading" (SPOT) option that allows traders to set their own parameters. In a "call/put" option a trader buys the right, but not necessarily the obligation, to purchase a currency at a predetermined price and time from a seller. In a SPOT option, a trader determines a scenario with regards to two currencies, their values and a specific time when this scenario might realize. If the scenario occurs then the trader receives a payout; otherwise, the trader loses the premium on the scenario.
  
  

Benefits

• The benefit of ForEx trading is that it is relatively less risky than other investment options because of the price and time constraints. Also, since most transactions are premium-based, there is less likelihood of losing significant amounts of invested money. There are many different resources one can use to gain a better understanding of international rates and access to personal trading. Typically traders use widely renowned company websites like Bloomberg.com and Wsj.com that provide numerical currency rates as well as pertinent news that can be used in determining the future trend of currencies.
  
  

Warning

• Although there are many advantages in ForEx trading it is considered to be somewhat more difficult than other trading options. Traders use both technical and fundamental analyses when making predictions and often consider a wide range of economic stimuli. Therefore, it is highly advisable to take caution and thoroughly research before trading.