FOREX – What Does it Mean?

In short FOREX refers to the Foreign Exchange Market, it is the biggest financial market worldwide, where a currency is traded for another. Each set of currencies makes up one “product” and is normally noted by a three letter e.g. EUR/USD being the price of the EURO expressed in US dollars; 1 euro = 1.20 US dollars.

Trading over $4 trillion per day, compared to $25 billion that is traded at the New York Stock exchange shows just how big the Foreign Exchange actually is. The largest part of the trading on this market is made up of currency traders, traders who speculate on the trends in exchange rates (taking advantage even of the smallest of fluctuations), similar to traders who would speculate on stock prices. A smaller part of the Foreign Exchange is the international corporations who benefit by exchanging currency for their own purposes for paying wages. Exchange rate fluctuations are normally caused by actual monetary flows and anticipations on global economic conditions. In theory, important monetary information is released to the general public ensuring that everybody worldwide obtains the information simultaneously.

Understanding the Terminology

Bids and offer spreads are used similar to those of other markets, ask and offer system. Pips are the lowest denomination of the bid, say EUR/USD price of 1.4228 – the 8 is called a pip. Retail customers would have a spread marked up from 3 – 20 pips. This is a confusing buying and selling business due to the fact that nothing physical is being bought or sold. In layman’s terms, buying American dollars would in effect be like buying a piece of the American economy, the price of currency reflects the trend of what the market thinks about the current and future of that particular countries economy. When one currency versus another it reflects the economic situation of one county compared to another.

Where and How to get Started

Also known as the forex spot market it has no physical location, it is entirely an electronically operated market. Forex trading was initially intended for bankers and large companies and organisations but today due very much to the internet and online forex trading companies everyday people like us can trade now too, because you don’t need millions. All you really need to become a retail trader is a computer, a good internet connection, around $2000.00, and finding the right guide.

FOREX operates 24 hours a day and 7 days a week in conjunction with forex brokers, brokers with banks and banks with banks. As one session ends say in the US, the European or Asian sessions starts ensuring that all currencies continually trade. Unlike other markets, FOREX market traders can take advantage of news breaks instead of waiting for the market to open, making it appealing and easy to work on in your own space and time.