What is FOREX or FOREX Market? Part I

The Foreign Exchange market (also referred to as the Forex or FX market) is the largest financial market in the entire world, with over $1.5 trillion changing hands every day.

That’s larger than all US equity and Treasury markets put together!

Unlike other financial markets that operate at a centralized location (i.e. stock exchange), the worldwide Forex market has no central location. It’s a global electronic network of banks, financial institutions and individual traders, all involved in the buying and selling of national currencies. Another major feature of the Forex market is that it operates 24 hours a day, corresponding to the opening and closing of financial centers in countries all across the world, beginning every day in Sydney, then Tokyo, London and New York. At any time, in any location, you will find buyers and sellers, making the Forex market the most liquid market in the world. 

Typically, access to the Forex market has been made available only to banks along with other large financial institutions. With advances in technology through the years, nevertheless, the Forex market has become available to everybody, from banks to money managers to individual traders trading retail accounts. The time to get involved in this thrilling, global market has never been better than now. Open an account and become an active player in the largest market on the planet. 

The Forex Market is very different than trading currencies on the futures market, along with a lot simpler, than trading stocks or commodities. 

Whether you are aware of it or otherwise, you already play a role in the Forex market. The simple reality that you’ve money in your pocket makes you an investor in currency, especially in the US Dollar. By holding US Dollars, you have elected not to hold the currencies of other nations. Your purchases of stocks, bonds or other investments, along with cash deposited in your bank account, represent investments that depend heavily on the integrity of the value of their denominated currency ¨the US Dollar. Because of the changing value of the US Dollar and also the resulting fluctuations in exchange rates, your investments might change in value, affecting your overall monetary status. With this in mind, it should be no surprise that numerous investors have taken advantage of the fluctuation in Exchange Rates, using the volatility of the Foreign Exchange market as a way to increase their capital. 

Example: suppose you had $1000 and bought Euros when the exchange rate was 1.50 Euros to the dollar. You would then have 1500 Euros. If the value of Euros against the US dollar increased then you would sell (exchange) your Euros for dollars and have more dollars than you started with. 

Example:

You may see the following:

EUR/USD last trade 1.5000 means
One Euro is worth $1.50 US dollars.

The first currency (with this example, the EURO) is referred to as the base currency and the 2nd (/USD) as the counter or quote currency.

The FOREX plays a important role in the world economy and there will always be a great need for the exchange of currencies. International trade increases as technology and communication improves. As long as there’s international trade, there will be a FOREX market. The FX market needs to exist so a country such as Germany can sell goods in the United States and be able to obtain Euros in exchange for US Dollar.

RISK WARNING:

Risks of currency trading

Margined currency trading is an extremely risky type of investment and is only suitable for people and institutions equipped to handle the potential losses it involves. An account with an broker permits you to trade foreign currencies on a extremely leveraged basis (up to about 400 times your account equity).The funds in an account that is trading at maximum leverage might be completely lost if the position(s) held in the account experiences even a 1 percent swing in value. Because of the chance of losing one’s whole investment, speculation in the foreign exchange market should only be carried out with risk capital funds that, if lost, will not substantially affect the investors financial well-being.