INTRODUCTION TO FOREX
"FOREX" and "FX" are simply abbreviations of "foreign exchange" and refer to over-the-counter currency markets. Foreign exchange is the largest and liquid market in the world trading approximately $1.5 trillion every day (that is over 30 times the daily volume of NASDAQ and NYSE combined). The FOREX market are traded directly between banks, foreign currency dealers and forex investors wishing either to diversify, speculate or hedge foreign currency risk. The FOREX market is not a "market" in the traditional sense because there is no centralized location for FX trading activity and, therefore, trades placed in the FOREX market are considered over-the-counter (OTC). FOREX trading provides business opportunities between parties which occurs through computer terminals, exchanges and over telephones at thousands of locations worldwide. Until recently, the FOREX market was not available to the small speculator, this market was confined to larger traders: major international commercial and investment banks; international corporations; national and mulitnational companies; corporate members, international money brokers; currency traders etc. The large minimum foreign currency transaction sizes and financial requirements left this market in the hands of large FX speculators. Now, with the ability to leverage large positions with a relatively small amount of capital (margin), the online forex trading market is now liquid than ever and available to every one. Five major currencies dominate trading activities in the foreign exchange markets: the U.S. Dollar, Euro, Japanese Yen, Swiss Franc and British Pound. For example, purchasing the EUR/USD in the FOREX spot or futures market simply means the purchaser is buying the Euro and selling the U.S. Dollar in anticipation of the Euro gaining value in relation to the U.S. Dollar on a particular date. Similarly, the seller of a EUR/USD contract would be selling the Euro against the U.S. Dollar. Official figures show the U.S. Dollar is on one side of 83% of all spot foreign exchange transactions. The "spot" market simply refers to a currency contract with a prompt valuation date requiring settlement within two business days. Over the past several decades, an increase in international trade and foreign investment has made the economies of the world more interrelated. New opportunities for investors have been created with the fall of communism and the dramatic growth of the Asian and Latin American economies. Today, supply and demand for a particular currency is the driving factor in determining exchange rates. Many factors such as regularly reported economic figures and unexpected news reports, such as disasters or political instabilities, could also alter the desirability of holding a particular currency, thus influencing international supply and demand for that currency. It should come as no surprise that many shrewd investors have already taken advantage of the fluctuation in exchange rates. |
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