“Forex”, also known as ”FX”, stands for foreign exchange. It is an over-the-counter exchange market for world currencies, where you buy one currency and at the same time sell another currency. What is actually taking place is that you are exchanging the sold currency for the one that is being bought.
Currencies are always traded in pairs, for example US Dollar - Euro (USD/EUR) or Japanese Yen – US Dollar (JPN/USD). For forex, there is no centralized exchange like there is in stocks or futures. Transactions take place either by phone or electronically through a network.
Majority of people who trade currencies do so for the purpose of speculation for profit. They concentrate on the top currency pairs which are most liquid. These include the US dollar, Euro, Japanese yen, British pound, Canadian dollar, Swiss francs and Australian dollar. 85% or more of the daily trading occurs in these major currency pairs.
Minority, around 5%, of the currency trading is through foreign trade. This is where companies buy and sell products in foreign countries and also convert the profits from the foreign sales back into the domestic currency.
Forex is the world’s most traded market with excess of $3 trillion daily turnover. It trades 24 hours a day from Sunday 5pm ET to Friday 5 pm ET, starting in Sydney and then as the business day begins in Tokyo, London and New York.
Forex is very different from other financial markets as investors can monitor night or day currency fluctuations and therefore can take immediate action.
If you would like to make a comment, please fill out the form below.
