FOREX is an abbreviation of foreign exchange. Foreign exchange means the sale or purchase of one currency against the purchase or sale of another.
The FOREX market is the global interbank market in which all currencies are traded. FOREX is the world’s most liquid market with an average daily volume of $1.4 trillion. It is 46 times larger than all the futures markets combined.
The Foreign Currency Exchange Market is the largest, most powerful and profitable trading market in the world, irrespective of negative economic indicators.
This is because currencies “trend” better than every other market due to their macro-economic character. Currency fundamentals are much less random and arbitrary in nature than those of commodities whose supply and demand can literally change overnight (as was learned dramatically on September 11th 2001). In contrast, interest rates change only graduly and in small increments.
In the past, forex trading was limited largely to enormous money centre banks and other institutional traders. However, in recent years, with the advancement of technology and the growth of online trading platforms, it is now possible for small traders to take advantage of the significant benefits of foreign currency trading.
Traditional trading brings buyers and sellers together in a centralised location. With forex there is no need. Worldwide traders conduct business by high-speed Internet connections with the Interbank Foreign Currency Exchange through Forex Clearinghouses.
There are many advantages to forex trading as opposed to trading in stocks and futures. For example, while there are thousands of stocks to choose from, there are only a handful of major currencies to trade, the most popular being the Dollar, the Pound Sterling, the Swiss Franc, the Euro and the Yen.
Also, due to the sheer size of the market, forex trading provides considerably more leverage than stock or futures as a result of which the minimum investment required in order to get started is substantially lower.
The currency market is a seamless 24-hour market, allowing traders to choose flexible trading hours. This seamlessness also allows them to react to propitious or inauspicious news by trading immediately.
They are not constrained by opening times, unlike the futures market where, for example, if significant data comes in from Japan or England while the US futures market is closed, they cannot react to it until the following day.
This market with its vast size can absorb trading volume and transaction sizes that dwarf the capacity of any other market. The futures market with its measly $30 billion daily average volume cannot compete.
This and the greater price stability allow the trader to operate with a high degree of leverage. Unless you specify otherwise, FOREX sets your leverage level at its most lenient requirement.
Also, with FOREX it is impossible to have a debit balance. If your funds fall below margin requirements, the FOREX dealing desk simply closes all open positions.
In other words, if you make some terrible blunder and there is a devastating market move against you, you can never lose more than the amount of money in your account.
Finally, with FX trading, you get instantaneous execution and price certainty. Even during volatile times and fast moving markets, there is no discrepancy between the displayed price and the execution price.
You trade directly off real-time streaming prices and your trades are filled instantly.