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What is the Forex
What is FOREX?
Foreign Exchange (ForEex) trading is simply the exchanging of one currency
for another - Each Forex trade can theoretically be viewed as a 'spread '
trade where to buy one currency you must sell another. Convention dictates
that currencies are measured in units per 1 USD. For example, 1 USD is
worth approximately 125 JPY (Japanese Yen) or 1 USD is worth approximately
1.5000 CHF (Swiss Francs). As a result, when USD/JPY appreciates in value,
it is the USD that has appreciated in value relative to the JPY and not
vice-versa. Position-wise, to own or be 'Long' USDJPY means that you are
long the USD and concurrently short the JPY. USD, therefore, is the
default 'lead' currency.
About Foreign
Exchange Market
The Foreign Exchange market, also referred to as the "Forex" or "FX" market,
is the largest financial market in the world, with a daily average turnover
of well over US$1 trillion -- 30 times larger than the combined volume of
all U.S. equity markets. "Foreign Exchange" is the simultaneous buying of
one currency and selling of another. There are two reasons to buy and sell
currencies. About 5% of daily turnover is from companies and governments
that buy or sell products and services in a foreign country or must convert
profits made in foreign currencies into their domestic currency. The other
95% is trading for profit, or speculation. For speculators, the best trading
opportunities are with the most commonly traded (and therefore most liquid)
currencies, called "the Majors." Today, more than 85% of all daily
transactions involve trading of the Majors, which include the US Dollar,
Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and
Australian Dollar. A true 24-hour market, Forex trading begins each day in
Sydney, and moves around the globe as the business day begins in each
financial center, first to Tokyo, London, and New York. Unlike any other
financial market, investors can respond to currency fluctuations caused by
economic, social and political events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank' market,
due to the fact that transactions are conducted between two counterparts
over the telephone or via an electronic network. Forex Trading is not
centralized on an exchange, as with the stock and futures markets.
The foreign exchange
market is not a "market" in the traditional sense. There is no centralized
location for trading as there is in futures or stocks. Trading occurs over
the telephone and on computer terminals at thousands of locations worldwide.
Foreign Exchange is also the world's largest and deepest market. Daily
market turnover has skyrocketed from approximately 5 billion USD in 1977 to
a staggering 1.5 trillion US dollars today; even more on an active day. Most
foreign exchange activity consists of the spot business between the US
dollar and the six major currencies (Japanese Yen, Euro, British Pound,
Swiss Franc, Canadian Dollar and Australian Dollar) The FOREX market is so
large and is controlled by so many participants that no one player,
governments included, can directly control the direction of the market,
which is why the FOREX market is the most exciting market in the world.
Central banks, private banks, international corporations, money managers and
speculators all deal in FOREX trading.
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