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Forex trading, also known as FX Trading or Foreign Exchange Trading, involves exchanging one national currency for another. For example, if I go to the bank and exchange ten U.S. dollars for 15 Australian dollars, I have made a simple Forex trade.
The forex market is the largest trading market in the world. According to a study conducted in 2004, about two trillion dollars are traded in markets around the world every day.
The Forex market is very unique in several aspects, one of which is its international presence. Unlike the stock market, which is mostly located in New York and has fixed hours, the foreign exchange market is open twenty-four hours a day. Between markets in the United States, Europe, Asia, and other countries, at least one market is always open.
Other factors that make the forex market unique are the high liquidity of the market, the wide variety of investors and institutions involved, and the wide variety of factors that influence prices.
In the forex market, there is an asking price (the price at which the currency is sold) and a bid price (the price at which the currency is bought. Usually, these prices are very close to each other, often separated by one-hundredth of a cent.
The U.S. dollar is by far the most frequently exchanged currency. About eighty-nine percent of transactions involve the US dollar. Other highly traded currencies include the euro, yen (Japanese), pound sterling (British), franc (Swiss), and Australian dollar.
There are many types of investors in the forex market. The largest investors are banks. About fifty-three percent of forex transactions take place between two banks. Other investors include non-bank financial institutions, other corporations, retail stock brokers, investment firms, hedge funds, and speculators.
The forex market is the largest and arguably the most complex in the world.
