FOREX to the forefront

Although it has probably been the fastest-growing segment of the retail trading industry over the past three years, the global currency market — a.k.a, the interbank market, foreign exchange (forex) or just FX — has flown under the radar of many stock and futures traders.

Unlike futures currency trading, the forex market involves spot or “cash” transactions in currencies, with standard settlement two days after the trade. Until relatively recently, forex has always been a market apart, the domain of a closed network of the world’s largest banks, which — without a central exchange or single regulatory authority — trade currency fluctuations and make markets in currencies for each other around the clock.

They facilitate the continuous process of speculating and offsetting currency risk throughout the global economy, mostly in the background of the financial world, where stocks and interest rates make most of the headlines.

Forex has always been an institutional market. In years past, individual traders interested in speculating in currencies have had to use the futures market.

Now, however, online firms offering trading in the cash currency mar ket are proliferating and forex is accessible to the average trader — not just the banks, hedge funds, major currency dealers and the occasional high net-worth individual speculator.

Before risking money in forex trading, it’s a good idea for stock and commodity traders — even those with a good deal of experience — to understand how this market differs from its equity and futures counterparts.