FOREX MARKET, FOREX TRADING

The Foreign Exchange Market — better known as Forex — is a world wide market for buying and selling currencies.

The Foreign Exchange Market was established in 1971 with the abolishment of fixed currency exchanges. Currencies became valued at 'floating' rates determined by supply and demand. The Forex grown steadily throughout the 1970's, but with the technological advances of the 80's Forex grew from trading levels of $70 billion a day to the current level of $1.5 trillion.

The Forex is made up of about 5000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency exchange.

There is no centralized location of Forex — major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt. Even though there are many big players in Forex, it is accessible to the small investor thanks to recent changes in the regulations.

There are many advantages of trading in Forex :

Liquidity: Because of the size of the Foreign Exchange Market, investments are extremely liquid. International banks are continuously provides bid and ask offers and the high number of transactions each day means there is always a buyer and a seller for any currency.

Accessibility: The market is open 24 hours a day, 5 days a week. The market opens Monday morning Australian time and closes Friday afternoon New York time.

Open Market: Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time.

No commission Fees: Brokers earn money by setting a 'spread' — the difference between what a currency can be bought at and what it can be sold at.

How does the foreign currency exchange market work?

Currencies are traded in pairs — the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying another, so if an investor believes the euro increases against the dollar, he will sell dollars and buy euros.
It can be a relatively safe market for the individual investor. There are safeguards to protect both the broker and the investor.