Those unfamiliar with the term, FOREX (foreign exchange market), refers to an international exchange market where currencies are bought and sold. The foreign exchange market that we see today began in the 1970, when the exchange rates and floating currencies were free set up.
In such an environment only participants in the market determine the price of one currency against another, based on supply and demand for that currency.FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets where we can say with very few qualifications that it is free of external controls and that it can not be manipulated. It is also the largest liquid financial market, trade reaching between 1 and 1.5 billion U.S. dollars per day.
With this money, many are moving so quickly, it is clear that a single investor would find it near impossible to significantly affect the price of a major currency. In addition, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always buyers and willing sellers.Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some speculative investors as long-term, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue chips, which are generally more interesting than the long-term investor, the combination of constants, but small daily fluctuations in currency, creating an environment which attracts investors with a broad range of strategies.
How does FOREXTransactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 GMT Friday). In almost every time zone around the world, there are dealers who quote all major currencies. After deciding what currency the investor wishes to buy, he or she is through one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $ 500), and vastly increase their potential gains and losses. This is called marginal trading.
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