Forex

Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world’s currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion. All the world’s combined stock markets don’t even come close to this. But what does that mean to you? Take a closer look at forex trading and you may find some exciting trading opportunities unavailable with other investments.

History of Forex

The foreign exchange market began forming during the 1970s. This followed three decades of government restrictions on foreign exchange transactions under the Bretton Woods system of monetary management, which set out the rules for commercial and financial relations among the world’s major industrial states after World War II. Countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed per the Bretton Woods system.

The foreign exchange market is unique because of:

• its huge trading volume, representing the largest asset class in the world leading to high liquidity;
• its geographical dispersion;
• its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
• the variety of factors that affect exchange rates;
• the low margins of relative profit compared with other markets of fixed income; and
• the use of leverage to enhance profit and loss margins and with respect to account size.

Table of Comparisons

Summary

Forex is the largest and most liquid market in the world, with an average daily trading volume of more than $5 trillion. It is a decentralized global market where all the world’s currencies trade. Leverage is high, and traders can take advantage of the low margins of relative profit compared with other markets of fixed income. For more information about Forex, you can visit websites such as Investopedia, FXCM, and Forex.com.

See Also

• Currency Trading
• Currency Pair
• Pip
• Leverage
• Margin
• Spread
• Technical Analysis
• Fundamental Analysis
• Order Types
• Forex Broker

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