What is Forex?

Forex is the short form for Foreign Exchange (FOREX). Foreign Exchange (FOREX) is the arena where a nation's currency is exchanged for that of another. The foreign exchange market is the largest financial market in the world, with the equivalent of over $1.9 trillion changing hands daily; more than three times the aggregate amount of the US Equity and Treasury markets combined.

Unlike other financial markets, the Forex market has no physical location and no central exchange (off-exchange). It operates through a global network of banks, corporations and individuals trading one currency for another. The good news is that without a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another in all the major financial centres.

Traditionally, retail investors' only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. Today, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all use the FOREX market to pay for goods and services, transact in financial assets or to reduce the risk of currency movements by hedging their exposure in other markets.

Forex is a market that is changing all the time and in consequence with good trading opportunities during the whole trading day; this behavior is in part due to the increase in global trade and foreign investments during the last two decades that has made the economics of all countries more dependent upon one another.

This means that as a country's currency fluctuates as a result of economic activity it affects the currency of other countries. For example, Economic factors usually affect a currency by altering the interest rate structure and these will either appreciate or depreciate the currency of that particular country and reflect the monetary health of its economy.

Interestingly, some banks inject as much as 20-30% of their funds into the FOREX market, making 40-60% profits in all currencies. In fact there are experts that consider that banks will cease their loan transactional business in a few years, and better focus on currency trading as their primary revenue source.

The forex market has five major currencies: US Dollar, Japanese Yen, British Pound, Euro and the Swiss Franc. It is due to their great popularity in world's commerce transactions and its high activity that these five currencies account for over 70% of North American trading. Of course there are other tradable currencies; they include the Canadian, Australian and New Zealand Dollars. These minor currencies account for 4% - 7% of the total market volume. Together, all this major and minor currencies constitute the backbone of the Forex Market.

In the past, Forex has been dominated and used only by banks mainly, but thanks to technology and Internet, Forex is starting to get popular and accessible by people like you and me. The faster you engage in it; the faster you reap the profits.

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