What is Forex?
Forex is the “foreign exchange market.” Anyone in the world can participate in this market, making it one of the most universal markets available.
In the forex market, one is buying and selling currencies instead of goods or services.
Forex is the fastest growing market in the current world, showing a 20% growth between 2007 and 2010 alone.
Forex is 160 times larger than the New York Stock market.It’s daily transaction rate has reached nearly $4 trillion, more than any other market.
There are many participants in the forex market. Anyone from an individual or corporation to a bank can trade on the market.
So how do each of these separate entities trade on the same market? How can they participate, and what exactly do they do?
Well there are a few different ways that individuals and entities can trade on the markets.
Who trades on Forex?
Banks trade on the markets for themselves, and sometimes for their customers. Some banks trade billions of dollars each day.
Companies use the forex market to pay for goods and services from foreign countries, as well as sell their own goods and services in foreign countries.
These companies exchange currency on the market each day in order to be able to transact in other countries.
Government banks can also exchange trades on the forex market.
This can cause and increase or a decrease in the value of their nation’s currency.
Many times, a government’s central bank will use the reserves in the foreign exchange to stabilize their domestic markets.
Hedge funds also trade on forex markets. Many times, the trades made this way are binary in nature. This means that the hedge funds are trading without the intent of actually taking delivery of the currency. Instead, they speculate on the price movements and make money off of that. Individuals also trade on the foreign exchange market by trading currencies when traveling to other countries. There are also investors who use the forex market to facilitate transactions in foreign securities, building equity.
Finally there are the retail forex traders, the general public who access the market through a broker or a bank. Brokers work as an agent for the trader by trying to find the best price int eh market and execute trades on behalf of the trader, or “customer.” This is how most people trade on the forex market: they have a broker, who does the actual trading.
Why do people choose to trade on the forex market instead of the stock market? One reason is simplicity. On the stock market there are thousands of companies to choose from. It’s very difficult to decide which companies to choose, especially when it’s difficult to figure out what is happening internally at a company. In the forex market, it is much easier to make decisions. One can either buy, or sell: they are the only two options. Another advantage is that the forex market covers the globe, not just a particular country or region. It is also open for trading twenty-four hours a day, five days a week.
In order to start trading on the forex market, one doesn’t even need money. It is possible to open a demo account to begin trading in order to practice buying and selling. Some brokers even offer up to 50,000 dollars in virtual money. All that is needed to begin trading is a computer and an internet connection. For that reason, it is growing in popularity all over the world.