When answering the question “what is forex” one comes up with the answer that the word forex is short for the foreign exchange market. Also known as the currency market, this is a form of exchange for currency from all over the world. An exchange is created for the trading of money from all types of currencies from different countries and a huge group of buyers and sellers. The exchanges are open day and night except for weekends.
There are two principal FX exchanges, or trading exchanges, EBS and Reuters’ Dealing 3000. The values of different currencies at different times are determined by these exchanges. Different currencies can be bought and sold, with margins as profit is gained by buying low and selling higher, or selling short by selling high and making a short sale commitment to buy at a lower price if it is thought the market will be going down.
Deemed as being the most liquid financial market in the world, the foreign exchange market includes central banks, larger banks, currency speculators, institutional investors, retail investors, corporations and governments. The amount of investing and the daily turnover in the worldwide foreign exchange market is growing all the time.
Most of the developed countries of the world allow the trading of derivatives. These could be called future options of futures trading. This function is also a growing area.
Another answer to the question of “what is forex” is to say that forex is strictly a market that is over the counter. In this type of market broker/dealers trade by negotiating directly with one another as there is no central clearing house. The largest trading center is in London, England which sports roughly a 34 to 36% transaction share. Because of the dominance of London in the marketplace most of the quotes of a specific currency is the market price in London. For example, when the value of a currency is quoted, the value is the London market price at noon that day.
The foreign exchange market is sectored into different levels of access. The interbank market is at the topmost level. This level consists of the largest security dealers and the largest commercial banks. The differences between the bid and ask prices are extremely sharp and only made know to the inside members of these organizations. The reason for this is the huge volume that gets transacted in this group. Here a trader can guarantee large amounts of a currency and can demand a smaller, more exact difference between the pricing.
The next level includes the smaller banks, large multi-national companies, hedge funds and market makers of the retail variety. Insurance companies, mutual funds, and pension funds also are major players in these markets at these levels.
With the advent of the personal computer and internet access, the number of individual traders from all over the world has flourished. Individual traders and speculators can work at a job during the day and trade in the evenings due to the fact that the markets are open 24 hours a day.
Many individuals have asked the question of “what is forex” and have received the answer of a whole new world of profit potential that can be accessed at any time and any place that there is an internet connection. Trades are place at the convenience of the individual trader through a broker or a market maker, who then moves the order to the interbank market which fills the position of the individual trader. Then when the trade is closed by the individual, his account is credited with the gain or loss depending upon the movement of the currency value. This entire transaction can occur and be finished within a matter of seconds.
Individual traders can have access to various commercial trading software programs that will display the markets and different currency values. This software is marketed by different companies who sell or lease it to the individual traders. Trades can be placed through this software to the markets. In this way a running display of the markets and the trades of the individual broker are right in front of him at all times.
Most types of software have educational platforms and demo programs. The education is important so as to learn the processes and techniques of trading. The demo portion lets the trader practice trading with actual currencies, but with no risk as it is just practice. In this way the individual trader can become proficient at this practice.