Forex Fundamentals


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Have you ever thought of buying or selling money? It sounds kind of funny, but there is a way for you to do just that in the Forex market. Forex is a nickname for what is more formally known as the foreign exchange market.
The foreign exchange market is the largest financial market in the world. It is estimated that somewhere between 2 and 3 trillion dollars worth of currency is exchanged every day! To put this in perspective, the New York Stock Exchange (NYSE) averages roughly $50 billion dollars in volume per day. This means that the Forex market is roughly 50 times the size of the NYSE!
The Forex market is a pure market and free from any external control. It is considered a perfect market since the price of a currency is based solely on the supply and demand of a particular currency.
So, what exactly is exchanged on the foreign exchange market? Cold, hard cash. Well, more accurately bits of data that represent tangible currency, but the essence of Forex is trading one country’s currency against another. Let’s explore this further.
Currencies are traded in the Forex market relative to other countries’ currencies. This unique interaction results in currency being exchanged in pairs. For example, the Euro can be traded against the Dollar. Therefore you can buy a currency pair of EUR/USD (more on that later), which represents how many US Dollars one Euro is worth.
Forex markets do not have a physical site, meaning there isn’t a big building on Wall Street where a bunch of people yell and waive dollar bills in an attempt to get other people to buy them.
Instead, the Forex Market is considered an Over-the-Counter (OTC) market as it is run entirely through a continuous network of banks and brokers. This does not mean you purchase currency at your local drugstore, it just means that there isn’t a centralized location for exchange like many of the famous commodities markets.
The Forex markets involve a web of currencies from around the world, and currencies fluctuate in value frequently. A Forex trader will try to make a profit in the foreign exchange market by taking advantage of these market movements.
Quick History Lesson
Currency trading was historically based on a gold standard. This means that currencies were valued in terms of gold, rather than in terms of other currencies. The original gold exchange standard provided stability for currencies, but had a weakness of boom or bust patterns.
A historic accord was struck in 1944 at the United Nations Monetary and Financial Conference, commonly referred to as the Bretton Woods Agreement – famously named after the great Tiger Woods who presided over the conference. Just kidding, it was actually named after the resort where the conference took place – just checking to make sure you’re still awake and paying attention.
In the aftermath of the Great Depression and World War II, the Bretton Woods Agreement was designed to bring more economic security to the global marketplace and to ensure world peace.
The Bretton Woods Agreement evolved currency exchange in several ways, one of the changes was for the U.S. dollar to take the place of gold since it was designated as the reserve currency for all nations that signed the agreement. Ultimately, the dollar was not able to defend the fixed rate established by the Bretton Woods agreement and the decision was made to float the dollar.
The new floating currency system (established in 1971 by the Smithsonian Agreement) set the stage for today’s currency market. Since the prices of currencies were no longer tied to a standard such as gold or the dollar, one country’s currency could now be traded in relative terms against another country’s currency.

In recent years, the widespread use of the internet and personal computers-which began in the 1990s-has taken currency trading to a whole new level. It is now possible for almost anyone to open an account and participate in the Forex Market. With Axis buy forex online send money in 100+ currencies at any bank account in the world. Buy forex card for hassle-free & cashless travel. 24X7 availability!

Source : http://www.currencytrading.net/library/what-is-forex/
Added 12 months ago
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