What is Forex?

What is Forex?

Quite simply, it’s the global market that allows one to trade two currencies against each other. An exchange rate is the relative price of two currencies from two different countries.The foreign exchange market, which is usually known as “forex” or “FX,” is the largest financial market in the world.

The FX market is a global, decentralized market where the world’s currencies change hands. Exchange rates change by the second so the market is constantly in flux.

Only a tiny percentage of currency transactions happen in the “real economy” involving international trade and tourism like the airport example above.

Instead, most of the currency transactions that occur in the global foreign exchange market are bought (and sold) for speculative reasons.

Currency traders (also known as currency speculators) buy currencies hoping that they will be able to sell them at a higher price in the future.

Compared to the “measly” $22.4 billion per day volume of the New York Stock Exchange (NYSE), the foreign exchange market looks absolutely ginormous with its $6.6 TRILLION a day trade volume.

That huge $6.6 trillion number covers the entire global foreign exchange market, BUT the “spot” market, which is the part of the currency market that’s relevant to most forex traders is smaller at $2 trillion per day.

And then, if you just want to count the daily trading volume from retail traders (that’s us), it’s even smaller.

It is very difficult to determine the exact size of the retail segment of the FX market, but it’s estimated to be around 3-5% of overall daily FX trading volumes, or around $200-300 billion (maybe less).

So you see, the forex market is definitely huge, but not as huge as the others would like you to believe.

Aside from its size, the market also rarely closes! It’s open virtually round the clock.

The forex market is open 24 hours a day and 5 days a week, only closing down during the weekend. (What a bunch of slackers!)

So unlike the stock or bond markets, the forex market does NOT close at the end of each business day.

Instead, trading just shifts to different financial centers around the world. 

The day starts when traders wake up in Auckland/Wellington, then moves to Sydney, Singapore, Hong Kong, Tokyo, Frankfurt, London, and finally, New York, before trading starts all over again in Wellington!

In the next section, we’ll reveal WHAT exactly is traded in the forex market.

 Reprinted from Babypips，the copyright all reserved by the original author.

#BeginnerTalk#