What is Forex 101 ?

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FOREX 101

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FOREX Exchange

Forex 101

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Foreign currency exchange (Forex) market is the largest trading market in the world. Forex is a unique market. It is an over-the counter market (OTC) which means that there is no centralized exchange where currencies are bought and sold. Banks and forex dealers are connected globally through internet, fax and telephone.

Forex is actually the short form of the word Foreign Exchange. It refers to the simultaneous buying and selling of a currency pair. In Forex, currencies are always quoted in pairs. For example, USD/JPY refers to the US dollars and Japanese Yen pair. The major currencies being traded on the Forex market are Swiss Franc (CHF), Euro (EUR), British Pound (GBP) and the Japanese Yen (JPY). All these currencies are mostly traded against the US dollar (USD). Within the pair itself, the first currency is known as the base currency while the second currency is known as the quote or counter currency. All quotes for Forex are quoted in terms of the base currency. A currency quote includes two prices, the bid price and the ask price. The Bid price is the price that you get for selling a currency and the Ask price is the price that you get for buying a currency.

When to trade is another important question to be answered. The market begins its week in New Zealand, followed by Australia, Asia, The Middle East, Europe and then America. Nearly two-thirds of the New York trading activities occurs in the morning hours while the European markets are also open

Characteristics of the Forex Market

Liquidity

The Forex market is highly liquid. There are always willing buyers and sellers for the currency you wish to trade. High liquidity gives you the ability quickly buy or sell a particular item without causing a significant movement in the price.

Large volume of trade

A large turnover is a special feature of a forex market. The average daily international foreign exchange trading volume was $1.9 trillion in April 2004, which represents the amount and volume of trading that takes place in the Forex market.

Open 24hours a day

The Forex market has long trading hours: 24 hours a day except on weekends (from 20:15 UTC on Sunday until 22:00 UTC Friday). The FOREX market has major trading centers in London, New York, Tokyo, etc covering all the time zones. Traders can access the market any time.

Low Costs

Unlike the stocks and futures market where a trader has to pay a spread and commission, the FX market allows the trader to deal directly with the market maker paying only the spread and the price at which a market maker will buy from a customer.

Earning in the Forex market

7 out of 10 traders keep losing money in the Forex market. The rest of the 30% work freely from their home and earn millions annually. The key to earning money in this market is to study and understand Forex terms, skills and techniques.