Forex or FX, stands for foreign exchange. It is the largest financial market in the world today, trading at a daily volume close to $ 2 trillion and is expected to grow! You may also hear terms like spot or cash market which refer to the same: the forex market.
Who are the players in this market? The forex is made up of a number of participants: large global banks, central banks setting monetary policy for the respective country, large investment companies and of course speculators, amongst them the small retail trader (you guessed it – you and I!).
Where is the forex located? Well, the forex isn’t a physical market. There is no physical location, no building housing the central exchange. The forex is a global electronic market linking together banks, businesses, investment firms and retail traders via computers. You see, the forex really is made possible by technology, allowing even the smallest of trader to participate in this huge opportunity.
Is the forex just pure speculation? While there is much speculation in the forex, worldwide there is also a real need for currencies to be exchanged on a daily basis. Look at the following examples.
A US business sells products overseas. The company needs to exchange the foreign currency it received as profit for dollars.
You go on a trip around the world. You need to exchange US Dollars for the currencies of the countries you expect to spend the bulk of your time. Upon your return you exchange any foreign currency not spent back to dollars.
A global company purchases parts from foreign suppliers and pays for the products in local currency. The same company sells products all over the world and hence needs to exchange multiple currencies on an ongoing basis.
You get the idea, right? Note that much of this ongoing exchange involves the US Dollar!
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