Introduction to Forex
The foreign exchange (Forex, FX) market is the arena in which a nation's currency is exchanged for that of another at a mutually agreed rate. It was created in the 1970s, when international trade transitioned from fixed to floating exchange rates, and the Forex market is now considered to be the largest financial market in the world because of its huge turnover.
Forex stands for Foreign Exchange market (FX) which represents a multitude of inter-bank currency exchange transactions concluded at floating rates determined by the current market supply and demand. This system evolved back in the 1971 shortly after the previous “Bretton Woods” system of fixed rates was no more.
The market is constantly expanding as international trade is booming around the world and money flows are restrained by only few boundaries left. Nowadays the Forex market daily turnover estimates at $4 trillion and about 80% of its transactions is speculative jobbing on the exchange rate fluctuations. This attracts millions of participants from financial institutions to individual investors.
With the highest rates of information technologies and communications in the past two decades, the market itself has changed beyond recognition. Once surrounded with a halo of caste mystique, the profession of currency trading has become almost a mass. Currency transactions, which were recently privilege of the biggest monopolist banks are now publicly accessible thanks to e-commerce systems. And the foremost banks themselves also prefer trading via electronic systems rather than individual bilateral transactions. Daily transaction volumes of the largest international banks - Deutsche Bank, Barclays Bank, Union Bank of Switzerland, Citibank, Chase Manhattan Bank, Standard Chartered Bank are estimated at billions of U.S. dollars.
An important feature of the Forex market, however strange it may seem is its stability. Everyone knows that one of the properties of the stock market - its sudden falls, which has been proved very clearly during the recent crisis. Unlike the stock market, Forex is not falling. If the shares become worthless - it's a catastrophe for the both - issuer and investors. If one currency collapses, it only means that another one gets stronger. In late 2008 - early 2009 for instance, the Dollar has risen by tens of percent against all currencies. Still the market did not collapse and trade continues as usual. This is the stability of the market and related business - currency is an absolutely liquid commodity and will always haggle. The main advantage of the currency market is that one can achieve a sustained success with the power of intellect.
Forex is around the clock. It is not related to any specific timetables as trade takes place among banks located in different parts of the World. The mobility of exchange rates is such that significant changes happen quite frequently, which enables to make several transactions every day. If you have an elaborate and reliable trading technology this can be turned into a business no other will be able to compete with. No wonder why banks buy expensive electronic equipment and maintain hundreds of staff of traders, working in different segments of the currency market.
Initial cost of getting into the business is extremely low. One needs to undergo a basic training, to buy a computer, to open an account and make a deposit - everything under several thousand dollars. You will never ever be able to start up any other business with such money. It is more than easy to find a reliable broker too. The rest of course depends on the trader only. Just like any other activity nowadays you are getting yourself into - it all depends on your personally. International monetary system has gone a long way over the millennium of human history, but there are no doubts we have seen it changing in the most interesting and previously unthinkable way. There are two main changes determining a new image of the World's monetary system:
- The money is fully separated from any tangible media or equivalent.
- Powerful information and telecommunications technologies made it possible to combine monetary and banking systems of different countries into a single global financial system that has no boundaries.