What Is Forex, Anyway?

1. The FOREIGN CHANGE (FOREX or FX) Market is not a market in the traditional sense. It is, in fact, the closest thing we have to a "perfect market" when viewed from an economics perspective. There is no centralized location for trading as there is in other forms of stocks and trading because all of the transactions are done online. Copyright (c) 2008 Orlando Thompson The FOREIGN EXCHANGE (FOREX,Guest Posting FX) market is not a "market" in the traditional sense. It is, in fact, the closest thing we have to a "perfect market" when viewed from an economics perspective. Trading is not centralized as it is with other types of stock trading. Trading takes place around the clock on computers and telephones in thousands of locations. Foreign Exchange (FOREX), is the largest market in the world. The daily market turnover has soared from 5 billion USD (and even more) in 1977 to staggering 2.5 trillion dollars (and even more) today. This is 100 times more than the daily turnover on the NASDAQ. Most foreign exchange activity consists of the spot business between the US dollar and the six major currencies (Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar), but the FOREX market is so large, and is hosting so many participants, that no single player, governments included, can directly control or make any significant influence over the direction of the market. The FOREX market is the most dynamic market in the entire world. Central banks, commercial banks, international corporations, money managers, speculators, and even private individuals - are all involved in FOREX trading everyday. Trading contracts for currency pair exchange rates is Foreign Exchange (FOREX). This is a "contract", or agreement (FOREX DEALS), that does not involve any physical exchange of currency. The magnitude of such FOREX trades is that, in order to make the deal, only a proportional amount is needed (the COLLATERAL, or the fxcm markets MARGIN). Thus, if the currency pair exchange rate has changed by some percentage, the value of the MARGIN invested would accordingly change, however - in a much higher proportion. The actual change to the Forex trader’s investment (the MARGIN deposited) will be the nominal exchange rate change multiplied by MARGIN ratio. Here is an example: a FOREX DAY-TRADING deal that has been made, for buying EUR 100,000 against USD, on an exchange rate of 1.3500. This deal is MARGIN-required by the FOREX Trading Platform. The ratio required for this transaction is around 1:100. The trader only invests USD $100. The exchange rate rose to 1.3620 after a few short hours. This is an increase of 0.89%, which is quite normal for the global Forex market. However, thanks to the MARGIN ratio (= the LEVERAGE), the trader's investment went up by 89% (since a leverage

2. of 1:100 has been used)!! Remember: that can happen in less than a day, sometimes in hours or even minutes! But the same thing could also happen in the other direction - traders can't lose more than the original MARGIN deposited. Note that the Forex trader may choose the direction of his deal (for example: either to BUY-EUR or to SELL-EUR in a EUR-USD deal), hence may profit (in case he was right ...) when the EUR goes down. Forex trading is available today not only for the MAJOR (the world's leading currencies), but also many other currency pairs, including exotics, gold, silver, etc ...). So don't just stand on the side lines wishing you had taken this opportunity to make a fortune, invest now and make is happen for yourself today.