Forex is basically the exchanging of once currency for another. It is a method of buying and selling international currencies simultaneously and it is always conducted in pairs. For example, a customer will sell their United States dollars and purchase the equivalent amount in Japanese Yen. All of the transactions take place over the phone or the Internet allowing these transactions to take play twenty-four hours a day.
A forex trading day starts at 5 pm eastern time and goes through to 4:59 PM eastern time the next day. A trading week starts on Sunday and goes through Friday. Trading starts in Sydney, Australia, and continues around the globe to Tokyo, London, and finally New York. Because of this rotation, anyone wishing to may a transaction can watch the way the currency is fluctuating across the globe and time their buying/selling appropriately.
Forex is unique in the financial world because the market is very fluid and the volumes of trade are extremely high. Because there is no central trading site, like Wall Street or other famous stocks and commodities locations, it is well spread across the globe. There are no 9 to 5 trading hours, traders are numerous and varied, and the margin profit can fluctuate. A variety of things can cause the exchange rates to go up and down, ultimately affecting the economy of many countries.
Foreign exchange market is considered assets and trading has grown over the years, becoming more popular than traditional equity markets. Hedge funds and pension plans have helped move this type of money investing opportunity along as they have become more important to the citizens of the world, especially those in the United States who are slowly watching their Social Security and retirement funds dwindle away. It gives the people of world a diverse selection of trading systems and alternatives to investing their money.
Forex is considered an ‘over the counter’ market. This means that there are no middle men and brokers or dealers negotiation with one another, not a clearing house or exchange. Of course, London seems to be the biggest area in which forex trading occurs, but they are not the only city that engages in this financial practice, nor do they set the buying and selling prices by themselves. There are ten international banks that work together to provide the world with the current buying and selling prices. The bid/ask spread is the difference between how much one party will sell for and how much their customer will actually pay. The spread is measured in ‘pips’ (percentage in points) and the minimum it runs are from zero to three. The minimum trading size between a seller and a buyer is 100,000 units of currency, called a ‘lot’.