Forex is an acronym for Foreign Exchange and is the exchange of currencies, one for another, at a price agreed upon before hand in the over the counter market. Forex is the world’s most traded market with the average value in trades of more than $4 trillion USD every day. Compare that $4 trillion to the $50 billion traded in the New York stock exchange every day and the bigger financial market is very apparent.
The Forex trader speculates if a base currency will depreciate or appreciate against another currency. If the trader thinks the value will depreciate, the trader will go short. If the trader thinks the value will appreciate, the trader will go long.
Forex trading is the buying of one currency and selling another currency at the same time for the purpose of speculation. The value of currencies rise and fall due to a number of factors and influences that include the political and economical environment. The overall goal of the Forex trader is to make a profit from the change in the currency value of one against another through the speculative process of forecasting whether the price of the currency will rise or fall.
The Forex market has no central exchange office or physical location. The Forex Market is open 24 hours each day beginning Sunday evening through Friday night and operates globally through a network of individuals, banks and businesses. This allows the currency process to fluctuate constantly in value against all other currencies allowing multiple opportunities for trading.
When the Forex market opens on Monday in New Zealand and follows the clock to the Asian market, out of Tokyo and Singapore, then moving to London and eventually closing in New York on Friday evening.
With the market being open and available 24 hours each day, allows a trader to enter the market and take a position at any time. This also assures traders price gapping, when the price jumps from one level to the next without a trade, is minimized.
One of the best perks of Forex trading is it is a leveraged financial product. What that means, is the trader just has to deposit a small percentage of the full value of the position to place a Forex trade. There is a greater potential for loss or profit from the original investment is greater than traditional trading.
Forex currency pairs are priced in terms of one currency against another. Each pair has a base price and counter price in the currencies being traded. The base currency is listed on the left and the counter currency is listed on the right, as noted in the currency exchange portfolio. The price movements are triggered by the currency appreciating or depreciating in value.