What Is Forex?

Forex is an acronym for the Foreign Exchange Market and is sometimes referred to as the FX market. The term is used to describe the exchange of one country’s currency into the currency of another country. Unlike stocks which are traded on a central exchange like the New York Stock Exchange, foreign currencies are not traded on a central exchange. Instead they are traded by governments, multi-national corporations, individuals, banks and other financial institutions. The FX market place processes transactions that have a value worth more than one and a half million dollars daily.
The trading of foreign currencies is necessary so that companies and countries can complete business transactions in another country using the currency in that local country. The FX market was created to help companies as well as others to complete the conversion of currency. This allowed them to be able to trade internationally. Trades are completed by buying a set amount of currency in one denomination while paying for it with currency in another denomination. The trades are called pairs because you are pairing one currency that you are buying with another currency that is used to pay for the purchase.
Let me give you an example of how this works. A multinational company like Wal-Mart or McDonalds may have a product produced in China or in any country. They have to pay for this product in Chinese Yuan which is the local currency in China. This product is then shipped to Japan where it is sold in a retail store. Wal-Mart receives payment in Japanese Yen which is the local currency. This money needs to be converted eventually to American dollars since Wal-Mart is an American corporation. Wal-Mart would use the FX market to handle the currency conversion throughout this transaction as the product moved from country to country.
In the past the trading of foreign currency was limited to governments and large financial institutions. When countries went away from the gold standard, access to the market for foreign currency was open to anyone. With the advent of the Internet anyone can trade currency on the FX market place. The only requirements to trade on the FX market are to open a Forex account with a brokerage company and to have computer connected to the Internet. The barriers to entry for Forex trading are very low which allows anyone with a computer with Internet access to trade on the FX market place.

Comments

Post a Comment

Popular posts from this blog

Forex Trading Requires Some Caution

Forex trading, like all potentially profitable investments, can be risky. Here's how to arm yourself with the knowledge you need to keep from getting burned. Whether it is in the millions or thousands, trading in the Forex is a bit risky. There are a lot of players involved and if you don’t arm yourself properly with knowledge about the Forex you may just get swamped. The Forex is the largest, most vibrant market in the whole wide world. The financial world has never had a market that involves so much transaction. Over a trillion dollars worth of different currencies exchange hands everyday. Some lose in the trade, while some hit the jackpot and make tons of money. The Forex is characterized by its unpredictability and the liquidity because it deals with foreign currencies and each one's value influenced by their own country. That's why anyone who is greatly considering joining the Forex trade should think twice, thrice and maybe even ten times before doing so. This ...
Read more

The Forex Market-What, When and Why?

The Forex Market--What, When and Why? A detailed overview of this amazing financial opportunity... Forex, FX and the Forex market are some common abbreviations for the Foreign Exchange market. Actually it is the largest financial market in the world, where money is sold and bought freely. In its present condition the Forex market was launched in the seventies, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from demand and supply. As far as the freedom from any external control and free competition are concerned, the Forex market is a perfect market. With a daily turnover of over trillions of dollars, the Foreign Exchange market conducts more than three times the aggregate amount volume of the United States Equity and Treasury markets combined. The Forex market is an over-the-counter market where buyers and sellers conduct foreign exchange business using different means of co...
Read more

Forex Supply and Demand

The Reality of Forex Markets - Someone Needs to Say It By now I know that you the reader have scoured the search engines trying to find out how forex is the next millionaire ticket to financial freedom. It’s like clock work that everyone visits this same introduction to forex trading. What a lot do not realize is that the forex image is controlled by a majority of smart marketers. Deception of how the markets really work out are provided in the masses. True there is some truth told but most of the bad is skewed and left out. This is a very difficult thing for a beginner because this information is the foundation of what they learn. Forex markets work the same as any other market in the world. True there is different information that provides the base of the certain market but they all operate in the same manner. So what is the big secret that lies behind how the currency market works? Supply and demand. Yup, a simple economic principle is the over laying factor in price movement...
Read more