Forex is an abbreviation for the foreign exchange market. A terminology which has unearthed some great financial potential in various untapped financial markets all around the globe. It is also referred to as retail forex, just forex, spot FX, FX etc. this is undoubtedly the largest financial market in the global arena. With a mind blowing volume of currency being traded in the forex [approximately $4 trillion / single day. Even financial gurus can never dream of comparing a sum of that magnitude with the volume dealt with in the New York central stock exchange which doles out just 25$ billion dollars a day. This is a clear indicator to pinpoint the enormity of the forex trade. To fact that the online forex market is amounting to more than three times the total sum of the stocks and future markets combined together is ample proof to its potential and enormity
To make the concept more ingestible let us see how forex rates operate in order to discern what exactly is forex. Forex trading involves the simultaneous purchase of one particular currency through the selling of another type of currency. The sale of currency in exchange for another currency is forex. in other words trading of money is forex. The trading is usually done through a broker or a dealer and the Trading is performed only in pairs. In simpler terms the pairs constitute the euro for the US dollar and the British pound for the Japanese yen etc.
The fact that in the trading there is no actual physical trading is really confusing to the fledgling trader. It is simpler to assume the buying of a certain currency as equivalent to buying of a share in a certain nation. For example if the trader is buying some Japanese yen currency then he is indirectly playing a role in Japanese economy by buying a small portion of the Japanese currency. This is due to the fact that the currency price directly has an impact on the market analyst’s line of thought about the current and predicted health of that country’s economy. In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country’s economy, compared to the other countries’ economies.
Online Forex Trading is unique since it seldom has any physical location nor does it possess a central exchange to facilitate direct trading. The forex market is a simulated marketplace and is widely regarded as a over the counter marketplace or in other words interbank market. This is because the entire market is run through electronic medium which is encased inside a secure network of banks all the time 24*7. Till the advent of the 1990s only heavy financial bigwigs could participate in the forex trading since the initial requirement were very demanding. They were allowed to trade only if they had a backup of close to fifty million dollars even to begin with. This was to enable only large banking firms and financial heavyweights play the game. But the advent of the internet age has opened up new avenues for retail players who are now able to deal even with paltry sums through retail forex trading.