The word “Forex” is derived from the words “Foreign Exchange”. The foreign Exchange market is the biggest market in the world with daily turnover (buying and selling) of up to 5 trillion dollars!
A lot of different organisations including banks, large companies, trading companies, investors and speculators all take part in the Forex market for many different reasons. Whilst a speculator may buy and sell positions looking to make money trading Forex by fast moves in the market, large companies could be exchanging large quantities of currency for clients that need their money converted into another currency.
The Forex market is the biggest in the world and turns over up to $5 trillion per day. There is no other market in the world that even comes close to having this sort of trading volume during a 24 hour period.
The Forex market for traders is a market where they can make profit by either buying low and selling high or by selling high and buying low.
Trading Forex for retail speculative traders has not always been available, It was not until around 1996 that retail traders have been able to trade. Before this, Forex was only the domain of either large companies, or the super rich.
With the invention of new technology and the internet, Forex has opened up to all sorts of traders with the smallest traders now being able to trade only cents at a time.
Where is Forex Located?
There is no central market place or exchange for the Forex market. Unlike stocks where each country has a processing place such as the New York Stock Exchange (NYSE) in the US or the Australian Stock Exchange (ASX) in Australia, Forex is a truly global market place that is connected by large banks and their prices. Because Forex has no set market place or exchange, there is no official daily or 24 hour closing time, although the close of the US market is generally seen world wide as the close of the Forex market for the day and the start of the Asian session as the start of the market again.
Who Trades Forex?
The Forex market is traded by a variety of different organisations and individuals. Some of the main players in the Forex market are:
- Trading Companies
- Large international companies
- Speculators/Retail traders
The category that traders who are trading from home are placed into is the “speculator/retail trader” category. You will often also hear a trader referred to as the retail trader. The speculator looks to make a profit from small price increases. These traders will normally trade through a broker and use leverage to help them open large positions for small outlays. Margin and leverage are covered a little more further on in the beginners course so keep reading on for more information.
What is Traded in the Forex Market?
When trading in the Forex market you are buying and selling currencies. Currencies are traded in what is known as pairs – more on that shortly. The price of each currency is normally a reflection of what the market or market participants thinks of that country’s economy. Basically; if the price is rising for US dollars it is because the market thinks the US economy is strong relative to where the current price is. In other words; the price is cheap.
Some of the major currencies are listed below. Each currency is then given an abbreviation to make their trading symbol. For example; the Australian dollar is made into AUD. The AU is for Australia and the D stands for dollar. See below for the other main currency symbols.