Forex Trading is trading currencies from different countries against each other. Forex is acronym of Foreign Exchange.
For example, in Europe the currency in circulation is called the Euro (EUR) and in the United States the currency in circulation is called the US Dollar (USD). An example of a Forex trade is to buy the Euro while simultaneously selling US Dollar. This is called going long on the EUR/USD.
One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day,
The market is open 24 hours a day, Five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney – across almost every time zone. This means that when the trading day in the U.S. ends, the Forex market begins a new in Tokyo and Hong Kong. As such, the Forex market can be extremely active any time of the day, with price quotes changing constantly.
Forex (or FX) refers to the foreign exchange markets, where currencies are traded. It is the biggest and fastest growing financial market in the world, with an average daily turnover of almost $2 trillion – many times the total traded volume of the US stock exchanges.
The forex market consists of a worldwide wired network of buyers and sellers of currencies, with trading all done over-the-counter (OTC), which means that there is no central exchange and clearinghouse where orders are matched. If you are looking for 24-hour action, you can find it in this global trading system, where no physical barriers exist and activity moves seamlessly from one major financial centre to another.
A reason why there is a veil of mystery over forex is that the market was once the exclusive playground of banks, hedge funds, corporations and financial institutions, where money changed hands for commercial and speculative purposes. However, forex has now expanded and is easily accessible to all traders with the rapid emergence of online currency trading platforms. Many of these platforms are wellequipped with free charting software, real-time news-feeds and easy-to-use order placing systems.
The wide availability of sophisticated technology has spawned a whole new level of foreign exchange, where self-directed (so-called “retail”) traders can easily buy and sell currencies through an internet connection with a click of the mouse, dealing with invisible counter-parties on the other side of the transaction. This group of people (also known as speculative traders) engage in trading forex for the sole purpose of making profits.
Welcome to the new world of online forex trading.
The rapid fluctuations of currency exchange rates are what attract speculators to the forex market as currencies are highly sensitive, and thus react very fast to changing economic conditions of countries or regions, changing interest rates and political happenings around the world. Sometimes central banks of countries attempt to intervene in the forex market if the policy-makers feel that their country’s currency is too strong or too weak for their own good. All these factors lead to high volatility of currency prices, which can be taken advantage of by traders who speculate on the direction and magnitude of the current and future price move.
I would like to point out that while movements in certain currency pairs can be quite volatile in nature, most major currencies generally move less than 1% daily, which is much lower than that of active stocks, which can easily move between 5- 10% per day.
Forex has increasingly become an extremely attractive alternative asset group for speculators to trade, in addition to the usual staple of stocks and futures. Anyone can trade Forex, but not every one can be profitable. That’s the rule of any game – not every one can win.