Forex, FX and the Forex market are some common abbreviations for the
Foreign Exchange market. Actually it is the largest financial market in
the world, where money
is sold and bought freely. In its present condition the Forex market
was launched in the seventies, when free exchange rates were introduced,
and only the participants of the market determine the price of one
currency against the other proceeding from demand and supply. As far as
the freedom from any external control and free competition are
concerned, the Forex market is a perfect market.
With a daily turnover of over trillions of dollars, the Foreign Exchange market conducts more
than three times the aggregate amount volume of the United States
Equity and Treasury markets combined. The Forex market is an
over-the-counter market where buyers and sellers conduct foreign
exchange business using different means of communication.
Unlike other financial markets,
the Forex market has no physical location or central exchange. Since
the Forex market lacks a physical exchange, the market trades
continuously on a 24-hour basis, moving from one time zone to the next,
across each of the world's major financial centers every day. Trillions
of dollars of foreign exchange activity takes place every day. From 1997
to the end of 2000, daily forex trading volume surged approximately
from US$5 billion to US$1.5 trillion and more (according to various
recent studies it has touched $1.7 trillion per day and dwarfs all other
markets for trading in size and volume). It is really difficult, if not
impossible; to determine an absolutely exact number because trading is
not centralized on an exchange. But one thing is for sure that the Forex
market continues to grow at a phenomenal rate.
Before the advent of Internet and ecommerce, only big
corporations, multinational banks and wealthy individuals could trade
currencies in the Forex market through the use of the proprietary trading systems
of banks. These systems required as much as US$1 million to open an
account. Thanks to advancements in online technology, today investors
with only a few thousand dollars can have access to the Forex market 24
hours a day and around 5 ? days of a week.
The Forex market is a nonstop cash market where currencies of nations are traded, typically via brokers
called forex brokers. Foreign currencies are constantly and
simultaneously bought and sold across local and global markets while
traders increase or decrease value of an investment upon currency
movements. Foreign exchange market conditions can change at any time in
response to real-time events so it is also considered to be a highly
volatile and fragile market too. Conditions of the Forex market never
remain the same they changes every second.
The foreign exchange market dwarfs the combined operations of the New York, London, and Tokyo futures and stock exchanges.
According to its size and scope it is many times larger than all other
markets. Stats shows that spot transactions and forward outright Forex
trading take place in the inter-bank market. 51% of the market is in
spot Forex transactions, followed by 32% in currency swap transactions.
Forward outright Forex transactions represent another 5% of this daily
turnover, with options on 'interbank' Forex transactions making up
another 8%. Therefore the inter-bank market accounts for 96% of the
global foreign exchange market, with the remaining 4% being divided
among all the global futures exchanges.
For traders, Forex trading provides an alternative to stock
market trading. While there are thousands of stocks to choose from,
there are only a few major currencies to trade (the Dollar, Yen, British
Pound, Swiss Franc, and the Euro are the most popular). Forex trading
also provides a lot more leverage than stock trading, and the minimum
investment to get started is a lot lower. Add to that the ability to
choose flexible trading hours (forex trading goes on 24 hours a day) and
you have the reason why so many stock traders have flocked to day trade currencies.
by Anthony Trister
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