What is Forex (Foreign Exchange Market) and does it work in fact? Due to its high accessibility and quick profit possibility, Forex is number one choice for all investors searching for stable profits. Learn the basic principles and terminology of the largest financial market in the world.
What is Forex?
Forex is a global decentralized market for the trading of currencies. This is the largest market in the world with the estimated daily turnover of 3.98 trillion US Dollars. Forex is traded by the entire financial world.
The foreign exchange market operates via large financial institutions and it works on several levels. Banks here change into a few smaller financial companies called „dealers“ who are involved in most of the foreign exchange trading.
Most of these dealers are represented by the banks and that is why this market is sometimes referred to as the „interbank market“, but there are also some insurance companies as well as other financial companies playing at this market. The trades between these dealers may be very large with hundreds of millions of dollars.
Individual traders are just market participants with no real impact on the market direction. Because of this sovereignty in the two given currencies, forex does not have supervisory bodies controlling its activities.
Forex helps the international trade and investments via currency conversion enabling. It allows a company in the United States to import its goods from the member states of the European Union and pay in Euros, even though its basic currency is different. It may also support speculation and evaluation concerning the actual value of the currencies and speculation based on the differences in interest rates between any two currencies.
Main market movers
- The main participants of the forex market are large international banks like:
- Citi Bank
- Deutsche Bank
- Barclays Investments Bank
These institutions are the main market movers together with the global economic news for the currencies which define the trading direction. However, it is not always easy to decode the real impact of the news or statements of large market movers.
Being open 24 hours a day except weekends, from 22 GMT Sunday until 22 GMT Friday, it is accessible to the traders in the whole world.
There are basically three main trading sessions:
- Tokyo session
- London session
- New York session
London and New York session are the most traded ones with the largest market volumes and largest movements. However, you are able to hit two of the trading sessions from each place in the world.
Trading forex as an individual has never been easier. You can use basically any forex broker to connect to the forex market from your computer at your home. There is a huge number of forex brokers today from which you can choose, the largest one being:
- Swissquote (MIG Bank)
- Admiral markets
They differentiate in their trading conditions, spreads, roll-overs, order executions, minimum traded volumes (either minilots or microlots) which are the main factors to consider when choosing your broker. The broker location may also play its role here.
The very basic characteristics of Forex are simple:
- the largest financial market in the world accessible practically to anyone
- the main participants are large international banks and institutions
- determination of the relative value of different currencies
- open 24 hours a day except weekends, from 22 GMT on Sunday until 22 GMT Friday
- average daily turnover in global FX of about 3.98 trillion US Dollars