A HISTORY OF THE FOREX

The FOREX (i.e., FOReign EXchange) market is an international market where the money (currency) of every country is sold and bought freely. It was launched in the 1970s at the moment of introduction of free exchange rates, and the price of one currency against another that occurs from supply and demand is determined only by market participants.


There is no external control, and competition is free because all the participants can decide to transact or not. In this respect, the FOREX is a perfect market because it can’t be controlled or monopolized by any of its participants. The enormous number of transactions executed day after day in a continuous activity make it the biggest liquid financial market. According to various assessments, money masses in the market constitute up to US $4.5 trillion a day.


Trading is conducted all over the world through telecommunications and electronic networks 24 hours a day, 5 days a week starting from 00:00 Greenwich Mean Time (GMT) on Monday (some starting a little earlier) to 10:00 p.m. GMT on Friday (some closing a little later). There are dealers quoting currencies in every time zone through

the main central markets: Frankfurt, London, New York, Tokyo, Hong Kong, Australia, New Zealand, etc.

To get a better understanding of FOREX quotes, you just have to know that one unit of
the base currency is equivalent to the exchange rate in the quote currency. For example,
if EUR/USD is trading at 1.2762, the price of 1 euro (base currency) in dollars (quote

currency) will be 1.2762 dollars.


FOREX trading is conducted through individual contracts. The standard contract size (also called a lot) is usually 100,000 units. This means that for every standard contract you acquire, you are controlling 100,000 units of the base currency. For this contract

size, each pip (the smallest price increment) is worth $10. Many companies offer mini accounts in which you can trade units of 10,000, where the pip value is $1 or even smaller.


In comparison with other markets, trading the FOREX market allows very low margin requirements because of leverage. In FOREX, you don’t need to obligatorily buy a currency first in order to sell it later. It is possible to open positions for buying and selling any currency without actually having it at hand: For a standard account size,

usually Internet brokers establish a minimum deposit such as $2000 for trading in the FOREX market and grant a leverage of 1:100. That is, opening the position at $100,000, a trader invests $1000 and receives $99,000 as a credit.



The FOREX is able to maintain its objectivity and avoid being controlled or manipulated by one or few of its participants because the volume transacted is so high that if any of them would want to do so, by changing prices at will, they would have to operate with tens of billions of dollars. This is the reason why the FOREX can’t be influenced by any single participant, and even though there are situations where a huge transaction can seem to take control of the market for a few moments, the balance is established again almost immediately because of the great liquidity involved. This also allows traders to get a profit by opening and closing positions within a few seconds.



The FOREX market is always moving. You can chose to maintain a position for a very short time or for longer periods, even years; it will depend only on your own trading strategies.

In the FOREX, it is possible to perform speculative activities without the need for a real money supply. This is referred to as marginal trading. The amount required as a guarantee for the transaction is low, thus providing an opportunity to open positions with a small account in U.S. dollars (some local brokers also accept some of the main currencies, such as the euro, pound sterling, Japanese yen, etc.) and buy or sell a lot of other different currencies.

What is Forex?

What is FOREX? FOREX (also known as FX) is the contracted name of FOReign
EXchange, an international trading market where banks, businesses, and public and
private investors of all the countries in the world can obtain and exchange their respective currencies so as to perform commercial transactions or simply speculate.


This market functions in a different way from the stock market; the stock exchange has a
fixed daily schedule for opening and closing, whereas the FOREX is open 24 hours a day, five days a week nonstop. 


FOREX activities start on Sunday afternoon at 5 p.m. Eastern Time (ET) and close on Friday at 4 p.m. ET. This continuous activity is possible because there are always open markets around the world, and today there is no need for the traders to be physically present at the exchange location because the funds can be traded electronically from any country.

The main markets involved in the FOREX are New Zealand, Sydney, Tokyo, China,

Frankfurt, London, Zurich, and New York. The FOREX market is the largest in the

world, where more than $3.2 trillion is being transacted every day (traditional daily

turnover was reported to be over US $3.2 trillion in April 2007 by the Bank for

International Settlements. Source: Triennial Central Bank Survey, BIS, December

2007), which is many times larger than the combined volume of all U.S. equities and

futures markets, and thus the FOREX is also the market that possesses the greatest

liquidity. Late in 2008, with all the uncertainty in the equities markets, the FOREX daily

turnover surpassed US $6.5 trillion in a day. This market will continue to attract more

and more investors.

Currency trading used to be an exclusive activity reserved to government central
banks and commercial and investment banks. In recent years, the market has opened up and become available to smaller investors and speculators, thanks to computers and the
Internet.


There is a broad electronic network that allows central banks from all over the world
to share their quotes and actual currency rates. This is known as the Interbank.In this
way, central banks are able to exchange and convert their currencies one into another in
real time. The currencies that are traded most commonly are the U.S. dollar, the Japanese yen, the euro, the British pound, the Swiss franc, the Canadian dollar, and the Australian dollar. The Interbank’s activity being continuous, and thanks to decentralization from any physical location or exchange, access to real quotes and the speed at which transactions can be performed are greatly increased.



When you are transacting on the FOREX market, you are simultaneously buying one
currency and selling another. Currencies are always traded in pairs, for example, pound
sterling/U.S. dollar (GBP/USD) or U.S. dollar/Canadian dollar (USD/CAD).



You would be executing a trade when there is an expectation that the currency you are
buying increases in respect to the one you are selling. If the value of the currency you
have bought effectively increases, you then would sell the position and take a profit.
Currency pairs are composed of a base currency, which is the first on the quote, and a
counter currency (also called the quote or payment currency), which appears as second

on the quote. When the U.S. dollar is the base currency, quotes are given in $1 USD per
counter currency, for example USD/CAD or USD/JPY.









The role of the FOREX in the world economy is very important because there is
always an increasing need of currency exchange owing to the development of
technology, communications, and general international commerce. Countries need the
FOREX market to be able to sell their products to other countries and receive payment
in their own currency or pay for their imported goods to the foreign producer in its own currency.