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.