Saturday, January 24, 2009

What is Forex?

The Foreign Exchange, also referred to as the "Forex" or "Spot FX" market, is
the largest financial market in the world, with over $1.2 trillion changing hands
every single day. If you compare that to the $25 billion a day volume that the
New York Stock Exchange trades, you see how giant the Foreign Exchange
really is. In fact it is three times larger than all of the US Equity and Treasury
markets combined!
What is traded on the Foreign Exchange? The answer is money. Forex trading
is where the currency of one nation is traded for that of another. Therefore,
Forex trading is always traded in pairs. The most commonly traded currency
pairs are traded against the US Dollar (USD). They are called ‘the Majors'. The
major currency pairs are the Euro Dollar (EUR/USD); the British Pound
(GBP/USD); the Japanese Yen (USD/JPY); and the Swiss Franc (USD/CHF).
The notable ‘commodity’ currency pairs that trade are the Canadian Dollar
(USD/CAD) and the Australian Dollar AUD/USD. Because there is not a central
exchange for the Forex market, these pairs and their crosses are traded over the
telephone and online through a global network of banks, multinational
corporations, importers and exporters, brokers and currency traders.
Traditionally, currency trading has been a 'professionals only' market available
exclusively to banks and large institutions, however, because of the rise of the
new E-economy, online Forex trading firms are now able to offer trading
accounts to 'retail' traders like you and I. Now almost anyone with a computer
and an Internet connection can trade currencies just like the world's largest
banks do. There are now over 6 million trading accounts worldwide up from 1.7
million in 1997.

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