The currency market is the largest financial market in the world.  The best estimates put the average daily trading volume at $3.2 trillion. That’s massive when you consider that the NYSE’s average daily trading volume hovers around $150 billion.

Experts also say that roughly 70-90% of all the trading activity comes from speculation, which is trading purely for profit.  You may be wondering why anyone would trade for any other reason than for a forex profit so let me explain why the forex market was setup to begin with.

The fundamental purpose of the forex market was to grease the wheels of international trade.  It was setup as a platform so people doing business in foreign countries could be made more efficient, at least in the exchange of currencies.

If a businessman in the US wants to start a coffeeshop in Europe, he must exchange his US dollar (USD) into Euro’s (EUR).  This is an oversimplified example, but its this very kind of thing that the forex market was made for.

Although this was the fundamental reason it was created, speculators have come in to make a profit off of it’s volatility.  In fact, so many speculators have been attracted by the profit potential of trading that it is now the most frequent activity in the currency market.

Speculators seems like vultures in this instance, but they actually help the market.  They provide a level of liquidity so that businessmen and companies that do need to exchange currencies for international trade, they can have better access to capital.

In addition to providing liquidity, speculators also keep the market efficient.  The liquidity and the trading volumes keep the prices as close to real market value as possible.

Traders use many kinds of forex trading strategies to trade this market.  There are simple strategies like spotting trends to complex ones like trading arbitrage.  Many also use things like Elliot Wave and Fibonacci Retracement to predict price movements.

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