What is Forex?
What is the worlds largest financial market? Stocks? NO. Not even if you combine the entire world’s equity markets together!! The largest financial market in the world is the currency market – currencies exchange hands at a daily pace estimated in excess of USD$3 trillion a day!! About 30% of this business is done in London, the world’s largest foreign exchange centre. The Foreign Currency Exchange Market (FOREX) is an international market place where trading takes place on the world’s major currencies such as the United States Dollar, the Swiss Franc, the Euro, the Japanese Yen, and British Pound. Principally the market exists to enable major financial institutions, businesses and governments to protect themselves from adverse fluctuations in currency values thereby enabling them to manage their risk in international trading. The bulk of the trading is between 300 large international banks which process transactions for large companies and governments and for their own accounts. However, there is also the “speculator” segment in the Forex market. Speculator traders and investors who invest money to buy and sell foreign currencies to profit and take advantage from the constant price fluctuation of foreign currencies. Banks are the largest speculators in Forex – it is estimated that some banks generate up to 70% of their revenues from currency speculation!! Forex trading is not bound to any one floor but done electronically between a network of banks continuously over a 24 hour period. The word “market” is a slight misnomer in describing Forex trading. There is no centralized location for trading activity (“pit”) as there is in stocks and futures. Trading occurs over the phone and through the computer terminals and over the Internet at locations worldwide. The advent of the internet and commensurate sophisticated software has opened a whole new world for the small investor allowing him to trade this profitable market place from the comfort of his dwelling or office. There has been an explosion of online investment accounts as sophisticated private investors realize the advantages of trading with Forex over the Internet. Note: Forex Trading is not done on a regulated exchange and as a result there are additional risks associated with this type of trading which you should be aware of before entering this market.
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