What Is Forex?

FOREX stands for Foreign Exchange (trading), popularly known as Forex or FX, is the world's largest and most liquid trading market.

History: Spot Forex started in 1971

Many traders, both new and experienced, want to learn more about the Forex market. The Forex market, also referred to as FX, foreign exchange, the global market or the currency market, has been the market of choice for global hedge funds and institutional investors for years. Yet this market is new to many individual traders.

In the past few years, the popularity of Forex trading has taken off, and for good reason. The Forex markets daily liquidity, at about $1.9 trillion, is unmatched. The tremendous leverage (as high as 200-to-1) means that the barriers to entry are very low. Please be advised that without proper risk management, a high degree of leverage can lead to large losses as well as gains. The Forex market is open and liquid 24 hours a day, so traders can enter the market whenever they please.

Why is Forex suddenly so popular?

Traditionally, access to this market had been restricted to corporations, macro hedge funds, and other institutional investors. The individual trader had no way to access the Forex market. With the advent of the online trading revolution, the Forex market was able to open its doors to retail clientele. This means that individuals can now trade alongside the biggest banks in the world with virtually similar pricing and execution.

How do traders make money in the Forex market?

Experienced equity and futures traders who focus on technical analysis can implement similar technical strategies in the Forex market. Nearly everything that you know about technical analysis from trading other instruments applies to the FX market. Also, the vast liquidity found in the currency market makes it much less likely that insignificant players will disrupt the market and temporarily skew technical indicators, which is common in less liquid markets.

How is 24-hour per day trading possible?

Banks and institutions exchange currencies every hour of the day and night, as the business hours of the major financial centers of the world overlap. The Forex trading day follows the sun around the world, moving from Australia to Japan to Europe, to the U.K. and the U.S., and back to Australia. London, New York, and Tokyo are the most active and influential FX markets, together accounting for about half of the world's spot Forex trading activity.

Why do currencies trade in pairs?

Whenever you enter a currency trade, there are two currencies involved. This is because the value of a currency itself does not change, but its value can change in relation to another currency. In other words, that dollar in your pocket will still be worth a dollar tomorrow; however, its value constantly fluctuates relative to other currencies. This is why currencies trade in pairs.