Speculating on the Currency Market

While financial and commercial transactions in the currency markets represent enormous sums, they still are insipid in comparison to amounts based on speculation.

By far the bulk of currency trading volume is based on speculation - traders buying and selling for short-term gains based on minute-to-minute, hour-to-hour, and day-to-day price fluctuations.

Estimates are that around 90 percent of daily trading volume is consequential from speculation (meaning, commercial or investment-based forex trades account for less than 10 percent of daily global volume). The depth and breadth of the speculative market means that the liquidity of the overall forex market is incomparable among global financial markets.

The majority of spot currency trading, approximately 75 percent by volume, takes place in the so-called "major currencies," which represent the world's largest and most established economies.

Furthermore, activity in the forex market frequently functions on a regional "currency bloc" basis, where the greater part of trading takes place between the USD bloc, JPY bloc, and EUR bloc, representing the three largest global monetary regions.

Average daily currency trading volumes exceed $3 trillion per day. That's a mind-boggling number, isn't it?

$3,000,000,000,000 - that's a lot of zeros, no matter how you look at it. To give you some perspective on that size, it's about 10 to 15 times the size of daily trading volume on all the world's stock markets combined.

The best way for newcomers to get a grip on what currency trading is all about is to open a practice account.

Nearly every forex broker offers a free practice account to potential clients; all you need to do is sign up for one on the broker's Web site. Practice accounts are funded with "simulated" money, so you're able to make trades with no real money at stake and gain understanding in how margin trading works.

Practice accounts give you a great chance to practice the forex market. You can see how prices change at different times of the day, how various currency pairs may vary from each other, and how the forex market reacts to new information when major news and economic data is released.

You may also start trading in real market conditions without any fear of losing money, investigate with different trading strategies to see how they work, gain familiarity using different orders and managing open positions, improve your knowledge of how margin trading works, and start analyzing charts and following technical indicators.