Introduction to Foreign Exchange

Foreign exchange (also known as Forex) is about exchanging one currency for another. Unlike other financial markets, the Forex market has no physical location and no central exchange. It operates through a global network of banks, corporations and individuals trading one currency for another. The Forex market is the world’s largest financial market, trading 24 hours a day it is estimated that $1200 billion USD is traded every day.

Investors speculate on foreign exchange markets in the hope that they will benefit from fluctuations in exchange rates. Unlike most other financial markets, investors can respond to currency fluctuations caused by economic, political and social events at the time they occur, without having to wait for markets to open. With trading around the clock, Forex is potentially less risky than trading the stockmarket where you can be exposed to prices “gapping” between the time markets close and re-open.

Importers and exporters, international portfolio managers, corporations, speculators, day traders, long-term holders and hedge funds all use the Forex market to pay for goods and services, transact in financial assets or to reduce the risk of currency movements by hedging their exposure in other markets.

Forex dealing is a rapidly growing and potentially lucrative market that is often neglected by investors. However, access to modern news services, charting services, 24 hour dealing desks, and access to sophisticated online electronic trading platforms for retail investors has seen interest in the Forex market explode since the mid-1990s.

The foreign exchange market is one of the most liquid and largest of the financial markets making it an ideal part of a trader’s portfolio. Global foreign exchange turnover is over 20 times the combined turnover of all global equity markets. The sheer size of the Forex market squeezes the spread between the bid and offer to the smallest of levels.

This guide will give you the basic information you need to understand the Forex market. You will be introduced to market characteristics and conventions such as trading hours and terminology. Examples will help you to understand the mechanics of trading foreign exchange and you will find some useful information to help you get started.