The Forex market is the largest investment scene in the world today, and every year it continues to grow at increasing rates. In 2010, trading volumes in the Forex markets reached $5 trillion a day, which is a 20% increase from what the figure was in 2007. There are no new statistics for trading volumes in the Forex market today, but it is enough to know that the daily trading volume in The New York Stock Exchange alone exceeds $25 billion.
Currency exchange refers to changing the currency of the origin country to the currency of another country for purposes such as tourism, commerce or other services. Thus, the exchange rate is the price paid for one unit of a particular currency against another currency. Large companies wishing to expand into global markets need to conduct financial transactions in currencies of other countries. This makes the companies vulnerable to risk if they want to buy foreign goods or services, especially if the currency they need to buy is volatile. Here comes the role of the Forex markets, which provides a means of hedging risk by stabilizing the rate at which the transaction will be completed in the future.
Individual investors buy or sell one currency for another, hoping to make profits from speculating the increase or decrease of the currency’s value.
There are currently more than 100 different currencies around the world, but international Forex transactions are made using major currencies, such as the US Dollar, the Euro, the Japanese Yen and other popular ones such as the British Pound, the Australian Dollar, the Canadian Dollar, the New Zealand Dollar, the Swiss Franc and so on. These currencies are traded as major pairs through spot transactions, futures and CFDs.
The Forex market, which is larger than the world’s stock and bond markets combined, operates 6 days a week, around the clock, opening on Sunday afternoon in the United States and closing on Friday afternoon. During Forex trading hours, market participants have to keep an eye on government reports, official economic news and release times. Economic data published by major countries usually coincide with the most active Forex trading sessions in the Forex markets. This means greater currency rates, so buying and selling may be executed at prices different from what the trader expects at the beginning of the sessions.
The volume of transactions done by individual investors in the Forex market is very low compared to banks and major financial institutions. However, the popularity of the Forex market continues to increase among individuals who depend on key factors such as interest rates and inflation rates, and other elements such as technical indicators and price patterns.
Unlike most other financial markets, in the Forex market there is no existing physical market such as stock or indices markets. However, Forex is traded through a global network of central banks, individuals and large companies, which means that currency prices fluctuate continuously against one another, creating profitable investment opportunities for market participants.