The Foreign Exchange market, also known as the “FOREX” or “Forex” or “Retail forex” or “FX” or “ Spot FX” or just “Spot” is the largest financial market in the world, with a volume of about $2 trillion a day. If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you can easily see how enormous the Foreign Exchange really is. It actually equates to more than three times the total amount of the stocks and futures markets combined.
What is traded on the Foreign Exchange?
The simple answer is money. Forex trading is the simultaneous buying of buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY). Because you are not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current future health of the Japanese 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. Unlike other financial markets like the New York Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is considered an Over-the-Counter (OTC) or `Interbank` market, due to the fact that the entire market is run electronically, within a network of banks, continously over a 24-hour period. Until the late 1990`s, only the “big guys” could play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucks to start with! Forex was originally
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