What is Forex?

FOREX stands for FOReign EXchange. The Foreign Exchange market is the biggest financial market in the world, with a daily turnover of over $4 trillion dollars (that's a whopping $4,000,000,000,000!). Almost all forex trades are of speculative nature, without physical delivery of currency; it's basically numbers flickering around on computer screens. Chances are your currency trades will be of the speculative kind, too.

So what is forex exactly? Forex trading is the simultaneous buying of one currency and selling of another. Every deal goes through intermediaries called brokers or dealers. Currencies are traded in pairs, for example euro vs. US dollar (EUR/USD), US dollar vs. Japanese yen (USD/JPY), US dollar vs Russian ruble (USD/RUB) and so on and so forth.

As you are not buying anything physical really, forex trading can be somewhat confusing. So, assume that when you buy a currency, it's like you're buying a piece of a country. When you buy, say, Japanese yen, it's like you bought a minuscule piece of the Japanese economy. This kind of thinking helps because the relative value of the currency is a direct reflection of what forex market participants believe about the state of the Japanese economy and its prospects for future growth or stagnation.

Forex - currency market

Hopefully, by now you have started to understand what is forex. Generally speaking, the rate of exchange of a given currency against the other currencies is a reflection of the state of the economy of this given country in comparison with the economies of the other countries.

As opposed to other financial markets such as, for instance, the New York Stock Exchange, the London Stock Exchange, Bolsa de Madrid or Bursa Malaysia, the forex market is not based in any particular headquarters. It has no particular central exchange. The forex market is an over-the-counter (OTC) market - an interbank market, meaning that all the trades are executed electronically in a network of banks. The forex market "is open" non-stop for over 5 days a week, from late Sunday until the end of Friday.

In the beginning only "the big fish" (sharks and better!) were able to participate in the currency market since the minimal required capital ran into the millions of dollars. That's why in those times the market was used primarily by banks and big institutions. However, nowadays with the proliferation and popularity of the internet, brokers offer online forex trading to individual traders such as yourself (commonly called "retail traders").

We hope we have satisfactorily answered the question What is forex? Now that you know what is forex, all you need in order to start trading currencies is a computer, a high-speed internet connection, as well as the information contained in ForexBeginning.

ForexBeginning has been created for newbies such as yourself. Here you can find information on the basics of forex trading presented in clear and easy-to-understand terms. If you have any questions at any point you can reach us at letmeask@forexbeginning.com