Forex trading market traders are active in the FX markets, as they are attracted to the opportunities that volatile and changing market conditions create. A multitude of economic forces impact the world's currencies. Some of the forces at work include interest rate differentials, domestic money supply growth, comparative rates of inflation, central bank intervention and political stability. In times of global uncertainty, some currencies may benefit from perceived "flight-to-safety" status. Or, if one country's economic outlook is perceived as strong by market forces, its currency may be firmer than another country's currency, where economic or political conditions are viewed with caution.

FX traders include governments, corporations and fund managers doing business with foreign countries, that need to exchange one currency for another, and speculators who seek to profit from price movements in the markets.

The highly liquid and volatile currency markets offer opportunities for speculators every day. Most speculators tend to focus on the so-called "majors," which are the most actively traded currencies and include the U.S. dollar, the euro, the Japanese yen, the British pound, the Swiss franc, the Australian dollar and the Canadian dollar.

Spot FX transactions are usually based on currency rates quoted for two-day settlement (U.S. dollar versus Canadian dollar is traded for one-day settlement), in order to transfer currency among the counter parties on the spot or value date. On the over-the-counter (OTC) market, FX traders also determine a forward exchange rate, such as for 30, 60 or 90 days in the future. A forward FX agreement specifies a currency exchange rate used for delivery at the stated time, or value date, in the future.

An exchange rate transaction is termed a cross-rate when the home country currency is not a party in the trade. For example, for a trader in the U.S., a cross rate would be euro/yen, or the euro against the Japanese yen.

Why Trade Forex

The FX markets are open 24X7 during the FX business week.

Individuals looking to profit from market movements can act any time of the day or night during the FX trading week to take advantage of changing market conditions. CME® offers electronic access to its entire range of FX futures, virtually 24X7 during the FX trading week. The extended access throughout the day was made possible with the introduction of "side-by-side" electronic trading with floor trading, occurring in CME forex futures trading pits.

There is a new FX futures market known as the Forex 500 which has great profit potential for smforex traders. Trading FX-markets offers good diversification to Forex market traders and fx day-trading.

In today's equity market environment, diversification is a critical factor in individual portfolio management and trader success. FX Futures can offer valuable market risk diversification for an investment portfolio that has trading market risk.

Exchange rates march to their own beat. On a historical basis, changes in exchange rates have had very low correlations with price movements in stock market values and interest rates. This lack of any systematic relationship can be exploited to lower portfolio risk and generate positive returns when other financial markets may be depressed.

When a trader initiates a position in a currency, it is either a bullish or bearish outlook versus other currencies. If the outlook is bullish, a trader can profit by purchasing that currency against other foreign currencies. However, if an outlook is bearish, a trader can profit by selling that currency against other currencies.

The Parker FX Index*, a benchmark which measures the returns of global currency managers, reveals healthy returns over the last three years. The Parker FX Index revealed gains of 3.24 percent over a 3 month time period, a 7.99 percent gain over the 12 months, a 12.63 percent gain over two years and a 20.8 percent gain over three years. Past performance in a particular financial instrument or index is not necessarily indicative of future results. There is a substantial risk of loss in trading futures on any type of investment product.

FX markets are deep and liquid, offering traders the opportunity to efficiently enter the market. Since their inception, the advantages of CME FX futures over cash market products have produced an active trading environment through which customers collectively place trades worth up to U.S. $32.1 billion (CME single-day volume record). The success of FX futures has created a robust trading environment.

As the world’s largest exchange for trading FX futures, CME has a wide network of traders who trade via affiliated futures brokerage firms. CME FX enjoys automated pricing support via electronic links to some of the world's leading financial institutions. These institutions supply the exchange with consistent liquidity and aggressive dealing spreads. When participating in the largest financial market in the world, the ability to execute trades regardless of position magnitude is critical. CME FX Forex markets offer needed market liquidity and required pricing via transparent, publicly available FX prices.