The Basics of The Forex Market

 

The foreign-exchange market, or forex, is the largest market in the world by volume. That is, more money
exchanges hands on the foreign exchange than in any market in the world. Some $1.5 Trillion is exchanged daily, compared to $25 billion on the New York Stock Exchange. Across the world, the daily volume of stock exchanges is till just one third of the volume of the foreign exchange market! It’s easy to see why the foreign exchange market has grown to be so big, brought about by greater interest in the market by retail investors like you and I.

So What is the Foreign Exchange?
The foreign exchange market is simply a market for money. Currency pairs, such as GBP/USD and USD/JPY are simply the value of one currency against another, in effect the exchange rate of the currencies. In the pairs above, the pairs represent the value of the Great British Pound against the Dollar (GBP/USD) and the US Dollar against the Japanese Yen (USD/JPY).

A Uncentralized Market
There is no central processing market for the foreign exchange. Instead, the market is made up of interbanks, which operate the foreign exchange market by processing orders to trade one currency for another. The market exists only among banks, it does not exist as a market itself. This makes the foreign-exchange market a over-the-counter (OTC) marketplace.

Until the internet opened up online trading for people like you and I, the foreign exchange market was dominated by the banks and other larger players. Small investors could not easily trade the forex market, and could not access leverage and other tools which make it so profitable. In fact, in order to trade the foreign exchange market, you would have to have as much as $10 to $50 million dollars. Today, many brokers allow investors to open up an account for as little as $500, and some even $1!