What Is The Forex Market?
The Foreign Exchange Market, also known as the "Forex" or "FX" market, has a daily average turnover of way over US$1 trillion. This is over 30 times larger than the combined volume of all of the U.S. equity markets combined.Currencies are traded in pairs, and Foreign Exchange is the simultaneous buying of one currency and selling of another currency.
An example would be Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY) Most foreign exchange trading is pure speculation for profit by traders and this amounts to about 95% of all foreign exchange. The other 5% is done by companies and governments that buy and sell goods and services, and have a need to convert profits made in foreign currencies into their domestic currency.
Companies and governments trade in whatever currency they need to, to convert back to their own domestic currency, while speculators trade only the major currencies, mainly because of liquidity.
Unlike the stocks and futures markets, which are centralized on an exchange, the Foreign Exchange Market is OTC (Over The Counter), or interbank -- the transactions take place electronically or over the telephone.
An example would be Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY) Most foreign exchange trading is pure speculation for profit by traders and this amounts to about 95% of all foreign exchange. The other 5% is done by companies and governments that buy and sell goods and services, and have a need to convert profits made in foreign currencies into their domestic currency.
Companies and governments trade in whatever currency they need to, to convert back to their own domestic currency, while speculators trade only the major currencies, mainly because of liquidity.
The Major Foreign Exchange Market Currencies
The major FX currencies are the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. Trading in the "majors" represents over 85% of all foreign currency exchange.The FX Trades 24 Hours A Day
Forex trading begins in Sydney each day, and moves to Tokyo, London, and New York in turn, making it a true 24 hour market -- actually it's 22 hours. This means that investors can respond to currency fluctuations, whether caused by economic, social or political events, as soon as they happen, day or night.Unlike the stocks and futures markets, which are centralized on an exchange, the Foreign Exchange Market is OTC (Over The Counter), or interbank -- the transactions take place electronically or over the telephone.