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What is Forex?
by Jareth Carter
http://www.forexjoy.com
Also known as FX, Forex is an abbreviation for the
foreign exchange market and is the largest market
in the world. A detailed study on the Forex market
in 1998 by the International Bank of Settlements
(IBS) showed a daily global turnover of $1.4
trillion. This represents an 80 percent increase
over daily global turnover in 1992.
Such a huge market is obviously dominated by
massive financial institutions and commercial
banks, investment banks, money centers and central
banks all play a significant role in the Forex
market. Huge single transactions of $200 to $500
million are not uncommon in such a marketplace.
Now you know that the Forex market is global but
if you are looking for the main currency exchange
center look no further than Great Britain. Great
Britain~s prime location makes it perfect for both
Asian and American markets. In fact, it accounts
for 30% of the daily activity in the market alone.
Even the United States falls second to Great
Britain.
Global currencies are exchanged in the Forex
market and traded in pairs. When you look at a
quote, the first currency is always the base. The
US Dollar typically acts as the base currency in a
trade. The exceptions are with the Australian
Dollar, the British Pound and the Euro.
The Forex is an over the counter market meaning
that there is no exchange floor as there is with
stocks, bonds, futures and options. But rather,
trades occur directly between market operators
like stock brokers and those placing the order
(the customer). Trades for stocks are processed
via an electronic network or over the telephone
once again broker to broker or broker to
customers. Trades occur in the major financial
centers which are located in Sydney, Hong Kong,
London, and New York.
Trading currency is similar to trading stocks.
When you trade currencies it means that you are
exchanging one currency for another. In simple
terms, a currency pair is an item that can be
bought and sold. You will buy currency if you
think it will rise in value and you will sell if
you think the base currency will fall. In
considering whether to buy or sell you need to
think of the price that the broker or customer is
willing to pay. This will determine how you move -
not unlike stocks really!
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