What is Forex? This lesson is important to beginners who are interested in the Foreign Exchange Market. Before the start of a successful career in the exchange market we recommend you to examine the basics of Forex.
After studying this first lesson, Forex will become easier for you. You will begin to understand finance, investments, cross rates of currencies and quotations. You will be able to operate with these terms at the level of the experienced trader soon. Once you are able to complete this course, there will be before you different opportunities for cooperation with the companies working at the international exchange market.
History of emergence of the Forex market
Now let us understand what is Forex. The acronym Forex came from the term Foreign Exchange, and the market arose when international traders began to take advantage of the floating rates of foreign currencies. The Foreign exchange market involves the exchange of certain amounts of monetary currencies of one country for a currency of another country on a specific date. During an exchange, currency rate concerning each other is determined by simple algorithm: a ratio of the demand and supply arranging both sides. From that moment, the Forex market emerged and became the most dynamic and liquid market, and also the only thing in the world working round the clock.
The volumes of commercial transactions in the Foreign Exchange Market constantly increased with time. The volume of currency transactions was not the only impressive data, but also rates of market development. In 1977 daily turnover was recorded on a mark of 5 billion US dollars. After a decade it increased to 600 billion, and by 1992 reached 1 trillion dollars. About 80% of transactions are speculative transactions on profit earning from auction with different exchange rates. There were tremendous changes in the Global market, thanks to the highest rates of development of information, technologies and developments of worldwide network on the Internet for the last two decades.
Interesting features of the Forex market
One of the most interesting facts about Forex is that there is no single point of sales or transaction. Forex represents a network of foreign exchange dealers connected by different means of telecommunications. Traders are dispersed on all largest international finance centers and work round the clock. For currency trading, phones or internet terminals are used. The major trading account currencies accepted are the American dollars, Euro, Swiss francs, Japanese yens, and British Pound.
Another feature of the Forex market is the unique opportunity of buying and selling foreign currency worth more than the trader’s capital. A trader is allowed to make transactions that is a hundred times worth more than his initial margin or contributed capital. Missing equities (in trading terminology “Credit leverage”) are provided by bank or other credit company where the client pays a warranty margin. Now that you have understood what is Forex, all these terms will be considered in more detail in the lessons to come. But first you must understand what currencies are being traded in Forex and how they are grouped.