The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world, with a daily average turnover of US$3.2 Trillion.
"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.
For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
A true 24-hour market from Sunday 5:00 PM ET to Friday 5:00PM ET, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night during trading hours.
The FX market is considered an Over The Counter (OTC) or 'interbank/interdealer' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.
WHY FOREX IS THE IDEAL ASSET CLASS
24-hour market
Trade on your own schedule, 24 hours a day, during normal market hours whenever the markets are open (Sunday 17:15 to Friday 16:30 Eastern Time)
No commissions
No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called the bid-ask spread.
Flexible leverage
Up to 1000:1 on Forex and 100:1 on Spot Metal trade. With more buying power, you can increase your total return on investment with less cash outlay. Of course, increasing leverage increases risk. With $1,000 cash in a margin account that allows 200:1 leverage (.5%), you can trade up to $200,000 in notional value.
Market volume helps facilitate price stability
With an average turnover of $3.2 trillion per day, Forex is the most traded market in the world
(Source: Bank for International Settlements, September 2007)
No one can corner the market
The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.
No one can corner the market
The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.
