What is forex?
Forex, the Forex market
It is, simply, the global currency market, which allows the exchange of one currency for another.
If you have ever traveled to another country, you generally had to look for a currency exchange booth at the airport, and then exchange the money you have in your wallet to the currency of the country you are visiting.
Go to the counter and you will notice a screen displaying the different exchange rates of the different currencies.
Find “the Japanese yen” and think to yourself, “WOW!” Does my one dollar have a value of 100 yen ?! And I have ten dollars! I’ll be rich!!!”
By doing this, you have essentially participated in the forex market! You have exchanged one currency for another.
Or in the forex market terms, assuming you are an American visiting in Japan, you sold dollars and bought yen.
Before flying back home, stop by the currency exchange stand for the yen exchange that, miraculously, has left more (Tokyo is expensive!) And notice of the exchange rates have changed.
These are the changes in the exchange rate that allow you to earn money in the forex market.
The forex market, which is generally known as “forex” or “FX”, is the largest financial market in the world.
Compared to the “miserable” $ 22.4 million per day volume of the New York Stock Exchange (NYSE), the foreign exchange market looks absolutely gargantuan with its $ 5 BILLION dollars per day trading volume.
That is, billions with “B”.
Let’s take a moment to put this in perspective the use of monsters …
The largest stock market in the world, the New York Stock Exchange (NYSE), deals in a volume of around $ 22.4 million dollars each day. If we used a monster to represent the BAG of new york, it would look like this …
It looks intimidating. Some may even find it sexy.
You’ve heard about the NEW YORK BAG, on the news every day … on CNBC … on Bloomberg … on the BBC … heck, you probably even hear about it at your local gym. “The BAG of new york is today, blah, blah.”
When people talk about that “market”, that usually means the stock market. So the New York BAG sounds great, it’s strong and it likes to make a lot of noise.
But if we really compare with the forex market, it would look like this …
Oooh, the New York BAG looks so insignificant compared to the forex market! They have no chance!
Take a look at the chart, the daily average trading volume for the currency market, New York Stock Exchange, the Tokyo Stock Exchange, and the London Stock Exchange:
The forex market is more than 200 times BIG! It’s huge! But to keep your horses, there is a trap!
That huge amount of $ 5 billion dollar number covers the entire world currency market, BUT the daily trading volume of retail merchants (which is us) represent between 5 and 6% of total volume, or between 300- 400 billion dollars.
So you can see, the forex market is certainly huge, but not as huge as the others want to believe. We do not like to exaggerate. We just keeping ‘it real.
Apart from its size, the forex market also rarely closes!
The forex market is open 24 hours a day and 5 days a week, only closing down during the weekend. (What a bunch of bums!)
Thus, unlike the stock exchange or bond markets, the forex market is NOT closed at the end of each business day.
Instead, fair trade changes to different financial centers around the world.
The day starts when the merchants wake up in Sydney, then moves to Tokyo, London, Frankfurt and, finally, New York, before the negotiation starts all over again in Sydney!
In the next section, we will reveal exactly WHAT is traded in the forex market.