What is Forex anyway?

1. The FOREIGN EXCHANGE (FOREX, FX) market is not a "market" in the traditional sense. In fact, it is the closest thing to "a perfect market" from a pure 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. In fact, it is the closest thing to "a perfect market" from a pure economics perspective. There is no centralized homepage location for trading as there is in other forms of stocks and trading. Trading occurs around the clock over the telephone and on computer terminals at thousands of locations around the world. Foreign Exchange or (FOREX) is also the world's largest trade market. 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 more than 100 times the daily turnover of the NASDAQ (what's that worth to you). 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. That makes the FOREX market the most exciting market in the 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. For such FOREX deals, a small amount (the COLLATERAL or MARGIN) is all that is required to complete the transaction. 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. In fact, the actual change onto the Forex trader's investment (the MARGIN they deposited), will be the nominal change occurred to the exchange rate, multiplied by the MARGIN ratio (the leverage). 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. After a few hours, the exchange rate went up to 1.3620. 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 of 1:100 has been used)!! Remember: that can happen in less than a day, sometimes in hours or even minutes! But

2. 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 ...). Don't wait to see if you can make money, but invest today and start making it happen.