The Foreign Exchange Market (FOREX) What is FOREX? The Foreign Exchange Market, better Known as FOREX, was established in 1971 when fixed currency exchanges were abolished. Currencies became valued at ‘floating’ rates determined by supply and demand. The FOREX grew steadily throughout the 1970’s, but with the technological advances of the 80’s FOREX expanded from trading levels of $70 billion a day to the current level of $2.6 trillion. The Foreign Exchange Market, is a worldwide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $2.6 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day, and American stock markets exchange about $25 billion a day, you can see how enormous the Foreign Exchange really is. It actually equates to more than three times the total amount of the stock and futures markets combined. What Drives the forex market? Different countries use different currencies, however cross-border has to take place. The FOREX is therefore a vehicle driven by the need to move monetary payments across border and transfer funds and value from one currency to another. If the whole world used one currency there would be no need for the FOREX market. For example if a US restaurant needs to buy Italian cheese it needs Euros to pay the Italian cheese maker so it must be able to exchange US dollars for Euros. Likewise if the US restaurant makes the payment in US dollars the Italian cheese maker must be able to exchange the dollars into Euros. It's as simple as that. What is traded on the Foreign Exchange? The simple answer is money. Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, currencies are always traded in pairs; EX: the US dollar against Japanese yen, or the English pound against the Euro. So if a broker or a dealer believes that the Euro will gain against the dollar, he will sell dollars and buy Euros.Because you're not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy. Can I trade from home? Trade from anywhere. If you like to travel, this is a dream business. Take your laptop with you and you can trade the FOREX and make money anywhere in the world where you have an internet connection. You can be on the white-sand beaches of Guadeloupe (My country).You have total freedom of location. FX Trading is not bound to any one trading floor and is not centralized on an exchange, as with the stock and futures markets. The FX market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.All you need to get started is a computer, a high-speed Internet connection, and the information contained within this site. What is the spot market and on what exchange is it traded? In the Wall Street Journal, one can read quotations for the spot rate, forward rate, and options. At the spot rate, currencies can be exchanged within two days i.e. on the spot. The word market is a slight misnomer in describing Forex trading, since there is no central location where trading takes place. The bulk of trading is between 300 large international banks, which process transactions for large companies and governments. These institutions are continuously providing prices for each other and the broader market. The most recent quotation from one of these banks is considered the market's price for that currency. Forex trading is not bound to any one trading floor, but done electronically between a network of banks continuously and over a 24-hour period.