What is Forex, FX Currency Market?
Forex: short for foreign exchange. The foreign exchange market (Forex, FX, or currency market) is an organisation (organised market) for the global decentralised trading of international currencies.
Forex Global Hubs
Financial centres around the world function as hubs for trades between a wide range of buyers and sellers. The Forex marketplace determines the relative values of different currencies, including gold and precious metals.
The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it enables United Kingdom businesses to export/import goods from other countries and pay using local currencies, even though the businesses income is in United Kingdom Pounds. A typical foreign exchange transaction simply involves the purchase of one currency using a different currency, just like when we go on holiday to foreign parts.
Forex History (brief)
Forex History is quite short. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world’s major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous fixed rate regime.
In the Forex foreign exchange market you can trade one currency against another, very similar to stock exchange trading. It’s a huge world wide market with thousands of companies, traders, investors and speculators trading their currencies daily.
Not All Foreign Exchange Market Traders
Some people who partake in the Forex foreign exchange market are not trading currency as Forex dealers. Multinational companies, for example, are Forex currency trading simply to pay wages and other expenses in the countries where their products a manufactured or sold.
A large part of the Forex market is currency traders, those keen eyed, risk taking Forex trading brokers, who watch for any movement in exchange rates, just like those involved with day trading in the stock market. They look for small fluctuations in the exchange rates, aiming to make a killing.
As well as Forex trading brokers, Forex also supports direct, automated speculation in the value of currencies. This automated speculation is also based on the interest rate differential between trading currencies. Forex robots (computerised, automated trading systems) are widely used in this area.
There are several Forex Robots on the market, and they are getting better all the time. I’m sure you can imagine the amount of time, effort, money and research which goes into these automated systems given the enormous amount profits to be made (though on a bad day you can also make an enormous loss).
The advantage of using a Forex Robot in the foreign exchange markets as against the stock exchange is, timing and the variability of currencies throughout the world. What I mean by that is, there is no single universal exchange for specific currency pairs and as the market is available 24 hours a day, you don’t have to wait for your exchange to open (as you do with the stock market), it’s an all over the counter market.
Recommended Forex Broker List
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Forex Turnover 2010
According to the Bank for International Settlements, as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion.
The $3.98 trillion break-down is as follows:
- $1.490 trillion in spot transactions
- $475 billion in outright forwards
- $1.765 trillion in foreign exchange swaps
- $43 billion currency swaps
- $207 billion in options and other products
Forex Unique Characteristics
The foreign exchange market is unique because of the following characteristics:
- its huge trading volume representing the largest asset class in the world leading to high liquidity;
- its geographical dispersion;
- its continuous operation, trading from 20:15 GMT on Sunday until 22:00 GMT Friday;
- the variety of factors that affect exchange rates;
- the low margins of relative profit compared with other markets of fixed income; and
- the use of leverage to enhance profit and loss margins and with respect to account size.
Forex has been referred to as ‘the market closest to the ideal of perfect competition’.
As a decentralized and relatively unregulated market, Forex is extremely attractive to those perpetrating Forex scams, especially Forex autotrading, as it brings Forex trading to the masses and so makes even more people susceptible to frauds. Bodies such as the National Futures Association and the U.S. Securities and Exchange Commission have issued warnings and rules to avoid fraudulent Forex trading behaviour.
- Don’t get caught out! If you are going to use a Forex autotrading robot then use a tried and tested robot with a registered and regulated broker such as FxPrimus. You have been warned.
- Never, never, ever invest more than you can afford to lose in the Forex market place. No matter how good you and/or your system is, always hope for the best but plan for the worst. Don’t get caught with your pants down!
What is Forex, FX Currency Market Conclusion
If you need to find a good Forex Broker, VPS or robot then you should find these articles helpful, Recommended Forex Brokers, Recommended Forex Virtual Private Servers (VPS) and Forex Auto-Trading Robots. All of the Forex brokers listed also provide FREE practice areas for yourself and your robot once registered.
- P.S. FxPRIMUS also offer another industry first with 60 days FREE access to 1-on-1 live personal coaching, SMS trade alerts, tutorial videos and more inside FxPRIMUS Coach.
Well, I hope you found something useful and enjoyed this article, What is Forex, FX Currency Market. Don’t forget to let me have your thoughts in the comment box below. See you soon.