Foreign Exchange or Forex is an over the counter currency market, where the traders buy or sell currencies based on speculations in the marketplace. The foreign currency market is a twenty-four hour global market where the buyers and sellers are located across the globe. This market effectively determines international exchange rates for each currency. It includes all aspects of purchasing, selling and exchanging different currencies in current or predefined amounts. Forex is a very liquid market due to the large number of buyers and sellers.
FOREX is an acronym that stands for Foreign Currency Exchange. In the context, it refers to any currency other than the United States dollar. A variety of financial institutions participate in the FOREX marketplace. Major participants include banks, money brokers, corporate headquarters, central banks, and insurance companies. A variety of financial products are available through FOREX, including: currency traded currencies, currency futures, forward contracts, swap agreements, foreign securities, interest rate indices, spot exchanges, and forward payments.
Japan is the largest foreign exchange market in the world where approximately 5 trillion dollars are traded every month. A large number of these currencies traded are from Japan, which includes the Japanese yen (JPY), U.S. dollar (USD), European Euro (EUR), Swiss franc (CHF), New Zealand Dollar (NZD), Australian dollar (AUD), Chinese renminbi (RMB), and Norwegian krone (NOK). These currencies are traded back and forth in a bid to gain profit.
In addition to currencies traded, FOREX also includes commodity pairs such as the wheat index, the Australian dollar, the Singapore dollar, and the British pound. Other commodity pairs that can be used in the forex market are the Swiss franc, the Japanese yen, and the Canadian dollar. The types of commodities also vary by country as well as region. For example, one region may have oil and gas, another region may have gold and silver, and so forth. It is important for a FOREX trader to learn all about the different currencies and their commodity pairs that can be traded.
Traders must know what the current exchange rates are for each currency pair that they wish to trade. These rates will change frequently and it is important to stay on top of them to take advantage of the best time to buy or sell. Although this can be a daunting task for those who are not trained in foreign exchange trading, it can be done quite easily. All traders should keep a close eye on the foreign exchange rate markets to make sure they are maximizing their profits.
A trader would want to know what countries’ currencies were being traded. To do this, they could use a base currency that was chosen before the trade commenced. This base currency would be the US dollar and then the currencies being traded would be the other currencies the trader had chosen. Once all pairs of currencies were known, then a new name for the FOREX pair was chosen, usually the currency that most closely matched the base currency. This way, the foreign trader would know which currency pairs were being traded and therefore which pair the investor would get the best return on.