Forex trading or foreign exchange trading is the most wide and largest trading market in the world having a turn over of around 2.2 trillion dollars a day. Forex trading is the trading of currencies, buying one nation’s currency by simultaneously selling other nation’s currency. As a result of globalization, today most countries have less control over their money exchange rates, which in turn contributed the liquidity of the market. Because of the worldwide nature the market is open 24 hours a day permitting virtually any one in any part of the world to trade any nation’s currency.
The modern era of forex trading began in early 1970s, when currencies became a tradable financial product. The reason for this is the lifting of currency gold standard and marking them as free-floating FXORO . The market became well established in early 80’s with the increased movement of currencies, and also peoples, across the boarder. For individual forex traders, the real boom occurred with the introduction of online currency trading on internet. London still holds the position of largest currency trading city, or otherwise world forex capital, a privilege mainly comes from its geographical positioning.
Forex trades are not done through any centralized exchanges but are done OTC (over-the-counter) through broker-dealer interactions. The over-the-counter trading requires high speed electronic communication networks, ECNs, and trading systems. The forex trading systems may be of both types as online or web-based or broker-side forex platforms and direct access or client-side or stand alone forex trading platforms. Usually the first one is used by forex investors and less active traders and the second one is used by short-term active traders like forex day traders.
Forex trading is done in currency pairs such as EUR/USD, JPY/EUR, USD/JPY etc. Here the three letter codes are abbreviations for currencies such as EUR for Euro, USD for US Dollar, JPY for Japan Yen etc. The five major currencies in forex market are US Dollar, Euro, Japanese Yen, British Pound and Swiss Franc. Together all these five currencies constitute over 70% of forex trades. The major event in forex market for the last ten years was the introduction of Euro and the major happening in today’s age is the fast development of two Asian countries, China and India, as economic powers.
Even till the biggest beneficiaries of the money market are some large banks; around 80% of forex trades are done by banks. By an estimate major banks deposit around 30% of their money in forex market and make around 45% of their profit from this market. There are so many forex brokerages which help individuals to make profit from trading currencies. Forex trading also involves substantial risks and the currency interest rates are always changing in both ways according to local and global news and low changes.