FOREX BASICS

WHAT IS FOREX?
Forex is a short form for Foreign Exchange and is also referred to as
“Spot FX”. The Foreign Exchange Market can be described as an
arena where a nation’s currency is exchanged for that of another at a
mutually agreed rate. Therefore, forex trading is the buying and selling
of one currency against another to make profit, as the rate fluctuates
up or down.

It is the largest and least regulated market providing the greatest
liquidity to investors. Daily volume in the currency markets is around
$1.9 trillion.

By comparison, the NYSE daily volume averages $25 billion a day.
Participants in Forex include central banks, corporations, individual
investors and speculators, and hedge funds. With the advent of
electronic trading platforms, self-directed investors and smaller
financial firms now have access to the same liquidity as larger market
participants.

Trading, or speculation, makes up 95% of daily volume. The other 5%
of daily volume consists of governments and commercial companies
converting one currency into another from buying/selling goods and
services.
The word “market” is a slight misnomer in describing FOREX trading.
There is no centralized location for trading activity as there is in many
other markets. Trading occurs over the phone and through the
computer terminals at hundreds of locations worldwide.

The bulk of the trading is between approximately 300 large
international banks, which process transactions for large companies,
governments and for their own accounts. These banks are continually
providing prices (“bid” to buy and “ask” to sell) for each other and the
broader market. The most recent quotation from one of these banks is
considered the market’s current price for that currency. Various
private data reporting services provide this “live” price information via
the Internet.