What Is Forex ?

What is Foreign Exchange market ?

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 well over US$1 trillion -- 30 times larger than the combined volume of all U.S. equity markets. Unlike other financial markets, the forex market has no physical location or central exchange. It is an over-the-counter market where buyers and sellers including banks, corporations, and private investors conduct business. A true 24-hour market, 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. The huge number and diversity of players involved make it difficult for even governments to control the direction of the market. The unmatched liquidity and around-the-clock global activity make forex the ideal market for active traders.

Traditionally the forex market was only available to larger entities trading currencies for commercial and investment purposes through banks. Now trading platforms, such as the RF2000TM, allow smaller financial institutions and retail investors access to a similar level of liquidity as the major foreign exchange banks, by offering a gateway to the primary (Interbank) market. In the forex market currencies are always priced in pairs; therefore all trades result in the simultaneous buying of one currency and the selling of another. The objective of currency trading is to exchange one currency for another in the expectation that the market rate or price will change so that the currency you bought has increased its value relative to the one you sold. If you have bought a currency and the price appreciates in value, the trader must sell the currency back in order to lock in the profit. An open trade or position is one in which a trader has either bought/sold one currency pair and has not sold/bought back the equivalent amount to effectively close the position.

The first currency in the pair is referred to as the base currency, and the second currency is the counter or quote currency. This means that quotes are expressed as a unit of 1 of the first currency quoted per the other currency quoted in the pair. As with all financial products, FX quotes include a "bid" and "ask". The bid is the price at which a market maker (Realtime Forex) is willing to buy (and clients can sell) the base currency in exchange for the counter currency. The ask is the price at which a market maker (Realtime Forex) will sell (and clients can buy) the base currency in exchange for the counter currency. The difference between the bid and the ask price is referred to as the spread.

The market
The currency trading (foreign exchange, Forex, FX) market is the biggest and fastest growing market on earth. Its daily turnover is more than 2.5 trillion dollars. The participants in this market are central and commercial banks, corporations, institutional investors, hedge funds, and private individuals like you.

What happens in the market
Markets are places where goods are traded, and the same goes with Forex. In Forex markets, the “goods" are the currencies of various countries (as well as gold and silver). For example, you might buy euro with US dollars, or you might sell Japanese Yen for Canadian dollars. It’s as basic as trading one currency for another. Of course, you don’t have to purchase or sell actual, physical currency: you trade and work with your own base currency, and deal with any currency pair
you wish to.

Leverage is the Forex advantage
The ratio of investment to actual value is called “leverage". Using a $1,000 to buy a Forex contract with a $100,000 value is “leveraging" at a 1:100 ratio. The $1,000 is all you invest and all you risk, but the gains you can make may be many times greater.

How does one profit in the Forex market
Obviously, buy low and sell high! The profit potential comes from the fluctuations (changes) in the currency exchange market. Unlike the stock market, where share are purchased, Forex trading does not require physical purchase of the currencies, but rather involves contracts for amount and exchange rate of currency pairs.