What is forex?
Simply put, it is the global market that allows one currency to be exchanged for another.
If you have ever traveled to another country, you usually need to find a currency exchange room at the airport and then exchange the money you have in your walletfor munteenheid van cheese bezoek.
Go to the counter and notice a screen sampling different exchange rates for different waards.
You find "Japanese yen" en you think about yourself "WOW!
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My one dollar is worth 100 yen ?! And I have ten dollars! I'll be rich !!!"
When you do this, you are essentially involved in the foreign exchange market! You exchanged one currency for another.
Or in terms of currency trading, assuming you are an American visiting Japan, you sold dollars and bought yen.
Before you fly home, stop by the currency exchange room to exchange the miracle miracle you have left (Tokyo is expensive!) And notice that exchange rates have changed.
These changes in exchange rates allow you to make money in the foreign exchange market.
The foreign exchange market, commonly known as "forex" or "FX", is the largest financial market in the world.
Compared to the New York Stock Exchange (NYSE) volume of $ 22.4 billion a day, the foreign exchange market looks absolutely huge with a trading volume of $ 5 trillion a day.
That's a trillion with a "t".
Let's take some time to put it into perspective using monsters ...
The world's largest stock exchange, the New York Stock Exchange (NYSE), trades at around $ 22.4 billion each day. If we used a monster to represent the NYSE, it would look like this…
It looks intimidating. Some may even find it sexy.
You hear about the NYSE on the news every day ... on CNBC ... on Bloomberg ... on the BBC ... well, you'll probably hear it at your local gym. "NYSE is today, blah, blah."
When people talk about the "market", they usually mean the stock market. So NYSE sounds great, it's loud and it wants to make a lot of noise.
But if you really compare it to the foreign exchange market, it will look like this.
Oh, the NYSE looks so cunning compared to the foreign exchange market! It has no chance!
See the chart of the average daily trading volume for the foreign exchange market, the New York Stock Exchange, the Tokyo Stock Exchange and the London Stock Exchange:
The foreign exchange market is over 200 times BIG! It's huge! But keep your horses, there is a trap!
That huge $ 5 trillion covers the entire global foreign exchange market, BUT the daily trading volume of retailers (ie us) represents between 5-6% of the total volume or between $ 300-400 billion.
So you see, the foreign exchange market is definitely huge, but not as big as others would like you to believe. We do not want to exaggerate. We just keep it real.
In addition to its size, the market rarely closes too!
The foreign exchange market is open 24 hours a day, 5 days a week, closing only on weekends. (What a bunch of slackers!)
Thus, unlike stock or bond purchases, the foreign exchange market does NOT close at the end of each business day.
Instead, trade shifts to different financial centers around the world.
The day begins when traders wake up in Wellington, then move to Sydney, Singapore, Hong Kong, Tokyo, Frankfurt, London and finally to New York, before trading resumes in Washington!
In the next section, we will reveal what exactly is being negotiated in the foreign exchange market.
