what is FOREX ?

What is FOREX?

FOREX is the foreign exchange market or currency market. FOREX is the market where one currency is traded for another. It is the largest market in the world.

Some of the participants in this market are seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different countries. However, a large part of the market consists of currency traders. They speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take an advantage of even small fluctuations in exchange rates.

The most traded currencies in FOREX are Euro, US dollar, Swiss Frank, British Pound and Japanese Yen. Trading is not limited to those currencies; FOREX offers variety of currencies one can trade.

FOREX trading is done online. A person finds a FOREX broker, opens a trading account with the broker and deposits money. FOREX broker provides to a trader so called FOREX trading platform. It is an application, a working environment, where a trader buys and sells currencies, dealing online – he speculates to make money on the difference of currency rates.

In FOREX currencies are traded in pairs: EUR/USD, GBP/USD, AUD/JPY, USD/CHF.

Facts

Here are some basic facts to help you understand what FOREX is about.

FOREX is a spot market, where foreign currencies are traded - bought and sold for profit.

FOREX is a worldwide currency speculation arena with no centralized place for trading and exchange.

FOREX is a huge market with trillions dollars turnover a day and the largest investors are banks, hedge funds, investment companies and so on.

FOREX is open to individual retail investors – so-called Forex traders –through the services of FOREÕ brokerage companies that provide an access to the currency exchange market. They buy and sell for their clients.

FOREX is a 24 hour market that is traded every day all year round, except for holidays.

FOREX allows trading over 150 foreign currency pairs, among which the most traded are: EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, USDCAD and GBPJPY.

FOREX trading is based on technical (price, charts) and fundamental (news, economic events) analysis.

History

Forex trading can be tracked down to ancient times. Forex trading is actually the longest of all the other markets’ histories as there have always been people trading currencies with each other.

The Gold Standard put their mark in Forex history and changed it forever in 1886. A certain weight of gold was the point of value for foreign currencies. This standard was the fixed trading value. The British pound was defined as 123.27 grains of gold. The British banks defined the exact assessment of the value which aided in setting the UK standard currency as stable.

After World War II the economic status of the biggest nations of the world changed dramatically. The UK suffered insurmountable financial blow. While the US remained unharmed and their financial state stable even after the war. The US dollar then became the new standard of the financial market. This international financial framework leads the dollar to becoming the new global reserve currency. This new settlement started the tracking and monitoring of currencies as well as the International Monetary Fund (IMF), and launched the World Bank. This aimed at setting up the international monetary stability.

The Forex market as we know it today was actually established in 1971. The making of the market was to accommodate the floating exchange rates as they gradually materialized. By the year 1972, major countries had economical difficulties and generated the floating of their currencies. With the Smithsonian agreement, the European market tried to detach them from the dependency on the US dollar. This was possible with the agreements of the currencies' unlimited variety and flexibility. This gave way to the free-floating currency system. This free-floating system was officially mandated in 1978. Since then, prices were floated everyday along with volumes, speed and price volatility.

With advancing technology and computers, cross-border capital movement picked up its pace. This extended the market range all the way through Asian, European and American time zones. Forex trading rose dramatically from $70 billion a day in the 1980s and $1.5 trillion daily only 20 years later.

FAQ

How does Forex trading work?

Forex is traded in pairs: USD/Euro, USD/JPY, Euro/JPY, GBP/CHF, and CAD/USD. It is considered as Over-the-Counter or Inter-bank as trades are done between two counterparts via electronic network or telephone connections. Forex works truly as a 24-hour market. Everyday Forex trade begins when the financial centers in Sydney start their day, and moves around the globe to Tokyo, London, and then New York. Traders can always response to the market regardless of the local time.

What are the major traded currencies?

Major traded currencies are United States dollars, Australian Dollars, Japanese Yens, British Pounds, Swiss Francs, Canadian Dollars, and the Euro Dollars.

What are the working hours of Forex market?

Forex market is open from 22:00 GMT Sunday (opening of Australia trading session) till 22:00 GMT Friday (closing of USA trading session).

How much funds do I need to open an account?

The minimum deposit to open a standard account is US$2,500. A minimum transaction size is US$100,000 with a minimum margin deposit of $2,500 (at 100:1 leverage).

What is margin?

Margin is money you need to have in your broker account to secure your open position. Different brokers require different amount of margin money to keep your positions open.

What is leverage?

Leverage is a loan that is provided to an investor by the broker that is handling his or her Forex account. When an investor decides to invest in the Forex market, he or she must first open up a margin account with a broker.

Who trades Forex?

The trading of foreign exchange has been dominated by the large international banks. Corporations and money managers have always traded their forex with their preferred bank, which then covers the position in the Interbank market. However, with the recent availability of internet based trading systems there has been a rapid growth in the number of private individuals trading forex.