What is the global Forex market

Today, the Forex market is a nonstop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are continually and simultaneously bought and sold across local and global markets. The value of traders' investments increase or decrease based on currency movements. Foreign exchange market conditions can change at any time in response to real-time events.

The main attractions of short-term currency trading to private investors are:
• 24-hour trading, 5 days a week with nonstop access to global Forex dealers. (elsewhere we say the market is 24/7, not 24/5) • An enormous liquid market, making it easy to trade most currencies.
• Volatile markets offering profit opportunities.
• Standard instruments for controlling risk exposure.
• The ability to profit in rising as well as falling markets.
• Leveraged trading with low margin requirements.
• Many options for zero commission trading.

A brief history of the Forex market
The following is an overview into the historical evolution of the foreign exchange market and the roots of the international currency trading, from the days of the gold exchange, through the Bretton-Woods Agreement, to its current manifestation.

The Gold exchange period and the Bretton-Woods Agreement
The Bretton-Woods Agreement, established in 1944, fixed national currencies against the US dollar, and set the dollar at a rate of USD 35 per ounce of gold. In 1967, a Chicago bank refused to make a loan in pound sterling to a college professor by the name of Milton Friedman, because he had intended to use the funds to short the British currency. The bank's refusal to grant the loan was due to the Bretton-Woods Agreement. Bretton-Woods was aimed at establishing international monetary stability by preventing money from taking flight across countries, thus curbing speculation in foreign currencies.

The explosion of the euro market
The rapid development of the Eurodollar market , which can be defined as US dollars deposited in banks outside the US, was a major mechanism for speeding up Forex trading. Similarly, Euro markets are those where currencies are deposited outside their country of origin. The Eurodollar market came into being in the 1950s as a result of the Soviet Union depositing US dollars earned from oil revenue outside the US, in fear of having these assets frozen by US regulators. This gave rise to a vast offshore pool of dollars outside the control of US authorities. The US government reacted by imposing laws to restrict dollar lending to foreigners. Euro markets were particularly attractive because they had far fewer regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euro markets an advantageous place for holding excess liquidity, providing short-term loans and financing imports and exports. London was and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market, when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance. London's convenient geographical location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euro market.

Euro-Dollar currency exchange
The euro to US dollar exchange rate is the price at which the world demand for US dollars equals the world supply of euros. Regardless of geographical origin, a rise in the world demand for euros leads to an appreciation of the euro. Factors affecting the Euro to US dollar exchange rate Four factors are identified as fundamental determinants of the real euro to US dollar exchange rate:
• The international real interest rate differential between the Federal Reserve and European Central Bank
• Relative prices in the traded and non-traded goods sectors
• The real oil price
• The relative fiscal position of the US and Euro zone

The nominal bilateral US dollar to euro exchange is the exchange rate that attracts the most attention. Notwithstanding the comparative importance of bilateral trade links with the US, trade with the UK is, to some extent, more important for the euro.


--------------------
Trading Forex