What is Forex (Foreign Exchange Market)?

June 16, 2016

Forex is abbreviated from Foreign Exchange Market (currency market). This market is one of the biggest markets around the world. Forex is a global trading market, which participants are large international banks, institutional investors, funds and speculators. The daily turnover in the foreign exchange market exceeds the amount of 4 trillion US dollars and it is continuously growing.

Main operations in foreign exchange market are buying, selling and exchanging currencies. The transactions can be done electronically (by computer) from any point of the world or in the cash markets (currency exchange offices).  In both situations we have foreign exchange or Forex transaction.

The major currency pairs in forex market are: US dollar, Euro, British pound, Japanese yen, Swiss franc, Canadian dollar and Australian dollar. Of course there are many other available currencies.

Unlike other financial markets (such as the stock market), the currency exchange market is not positioned in a specific location. Forex market operates 24 hours in a day through a network of computer terminals connecting banks, corporations, brokers and individual investors who trade with different amounts ranging from millions of dollars for a deal to hundreds of dollars for ordinary investors. This ensures the formation of so-called "market liquidity" or the ability to buy or sell currencies without any restrictions. Trading begins each day in New Zealand followed by Sydney, Tokyo, London and New York, to the coast of California.

The development of the computers and the Internet technologies have made the forex market accessible to small players which can buy and sell currencies from their office or home.

Forex traders can also use Automated Forex software to automate their trading. Such software is called Forex Robots or Expert Advisor. Forex Robots are very popular among forex traders because they can work 24 hours per day and 5 days per week without any problems. Forex Robots (Expert Advisors) can trade, monitor and manage the trades automatically. Example for forex robots:

 



For each foreign exchange transaction always has two prices Bid and Ask. For example, take the price of EURUSD, which would look like this: 1.1200 / 1.1202.

  • Buy (Bid): The price at which the dealer buys and investors Sell
  • Sale (Ask): The price at which the dealer sells and investors buy the currency


The difference between the Bid and Ask is called spread (Spread). The spread is the cost that the investor pays for the transaction.

Currency pairs usually have 4 digits after the decimal sign, for example: GBPUSD  1.4300 / 1.4302, the last sign is called a "pip". In most currency pairs a pip is 0.0001 from the current rate. Of course there are some exceptions. The currency pairs where the second currency is the Japanese yen (JPY),  one pip is equal to 0.01.

Investors take decision to Buy or Sell based on trade technical or fundamental analysis. Technical analysis uses charts, trend lines, support levels and resistance, mathematical models and other things. Investors using fundamental approach base their decisions on economic analysis.
 

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Disclaimer U.S. Government Required Disclaimer – Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Clearly understand this: Information contained within this course is not an invitation to trade any specific investments. Trading requires risking money in pursuit of future gain. That is your decision. Do not risk any money you cannot afford to lose. This document does not take into account your own individual financial and personal circumstances. It is intended for educational purposes only and NOT as individual investment advice. Do not act on this without advice from your investment professional, who will verify what is suitable for your particular needs & circumstances. Failure to seek detailed professional personally tailored advice prior to acting could lead to you acting contrary to your own best interests & could lead to losses of capital.

*CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

By using FXAutomater's products, you acknowledge that you are familiar with these risks and that you are solely responsible for the outcomes of your decisions. We accept no liability whatsoever for any direct or consequential loss arising from the use of this product. It's to be noted carefully in this respect, that past results are not necessarily indicative of future performance.