Tuesday, October 21, 2008

What is FOREX?

The Foreign Exchange market, which is also known as the "FOREX" or "Forex" or "Retail forex" or “FX” or "Spot FX" or just "Spot" is the largest financial market in the whole world, with a volume of over $3 trillion a day! If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you can easily see how enormous the Foreign Exchange really is. It actually equates to more than three times the total amount of the stocks and futures markets combined! Forex is amazing!

You may wonder, what is traded in that market, well the simple answer is - Money! Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY) or the British pound and the US dollar (GBP/USD), etc.

This kind of trading can be confusing, because you're not buying anything physical, but it would help if you thought buying a currency is just like buying a share in a particular country. When you buy, let's say, British pound, you are in effect buying a share in the British economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the British economy.

The exchange rate of a currency versus other currencies, in general, is a reflection of the condition of that country's economy, compared to the other countries' economies.

Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.

Until the late 1990’s the initial requirement was that you could trade only if you had about ten to fifty million dollars to start with, so Forex was originally intended to be used by bankers and large institutions - and not by us home traders. However, because of the rise of the Internet, online Forex trading companies are now able to offer trading accounts to small home traders like us.

All you need to get started is a computer, a high-speed Internet connection, and the information contained within this site!