What is the Forex market
The foreign exchange market is where currencies are traded, allowing for the purchase of goods and services across borders. In order for international business to take place, currencies must be exchanged with one another.
For example, if you’re living in the UK and wish to buy some wine from France, either you or the company that buys the wine will need to pay in the currency of France, i.e. euros (EUR). This means that the UK importer would have to exchange the equivalent value of UK pounds into euros to be able to make the transaction. The same applies if you’re travelling, a UK tourist can’t pay in pounds sterling in the Philippines, they will need to convert the currency into Philippine Pesos (PHP) at the current exchange rate.
A unique fact of this market is that there is no central marketplace for all foreign exchange transactions. Instead, currency is traded electronically over-the-counter, which means all transactions occur via computer between a global network of traders. The Forex market is therefore open 24 hours a day, five and a half days a week, only closing at weekends.
How the internet has enabled FX trading
Prior to the interest it was difficult, albeit not impossible for individuals to invest and trade on the FX market. This was the realm purely for multinational companies, hedge funds and high-net worth individuals, primarily as trading required a significant amount of capital. With invent of the internet, a retail market has emerged, providing very simple access to the foreign exchange markets. Most online brokers today offer very high leverage to retail traders too, so they can control a large trade with only a small account balance.
Where to learn more about Forex
Over time, we’ll look at writing more about Forex trading, but for now, if you have any questions, put them into Google to find some good resources.