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Forex = Foreign Exchange: commonly known as FOREX or FX or spot FX, is the largest financial market in the world, with a daily trading volume of $ 1.95 trillion (2006) and currently stands at $ 5.1 trillion ($ 5.1 trillion, according to statistics from 2013). If you compare the $ 257 billion traded on the New York Stock Exchange every day, you can imagine how huge this market is.
Foreign exchange market (Forex) is a money market between banks established in 1971 when floating exchange rates are concretized. The market is an area in which each country's currency is exchanged and the place to conduct international business.
Forex is a group of about 4500 currency trading institutions, international banks, central government banks and trading companies. The payment for import and export as well as the sale of assets must be through the foreign exchange market. This is called the foreign exchange market "consumption".
What is the "commodity" of the FOREX market? The answer is MONEY. Forex trading is a trading activity that purchases a certain amount of money and sells another amount of money at the same time. Money is traded through brokers or directly in pairs; eg EUR/USD or GBP/JPY.
FOREX trading may be complicated for many people because they can not trade anything specific in the market. You simply think of buying a coin as buying a stock of a country. When you buy the Japanese yen, you are affecting the foreign exchange rate of Japan and indirectly on the Japanese economy, because the value of money is the reflection of the market assessment of "health" in the present and in the future of a country.
In general, the exchange rate of a currency against another currency is a reflection of the elements of an economy relative to another economy. Unlike other financial markets, FOREX does not have a financial or trading center. The foreign exchange market is an "interbank" market, and is based on e-transactions between banks, and operates 24 hours a day,
In the past decade, only the "giants" have entered the market. The minimum requirement if you want to trade in that time is that you must have between $10 million and $50 million to start. FOREX was originally designed to meet the needs of banks and large companies, not the "little guy". However, with the support of the Internet, the online trading system, the trading company was born to open the small account for us. Today, brokers on the market are allowed to break large trading units and allow small deals to buy or sell.
Commercial banks play two roles in the Forex market:
- Making the transaction between the two parties easy.
- Speculation by buying and selling currencies. Banks play a role in monetary units because they will buy when believe that its price will be higher in the future, and sell if the opposite. It is estimated that 70% of the annual income of international banks is generated by speculative currency. Other speculators include the most successful traders in the world such as George Soros.
The third type of Forex includes the central banks of other countries like the Federal Reserve Bank of America. They participate in Forex to ensure their country's financial profitability. When central banks buy and sell currency or foreign currency, the purpose is to maintain the value of their currency.
The Forex market is huge and there are a lot of participants, not just one, only the central bank of the government can control the market. Compared to the $ 300 billion daily average of the government bond market and about $ 100 billion traded on the US stock market, the Forex is so large that it has surpassed $ 1.9 trillion a day (2006).
The forex trading is done by phone and through computers in hundreds of locations around the world. The majority of transactions are made between about 300 major international banks, where they deal with large corporate, government and their account. These banks offer prices ("bid" to buy and "ask" to sell) to the market. The most recent index from one of these banks is the current market price for that currency.
To trading forex, all you need is a computer, Internet connection, and information about the market.