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?Chapter 1: What is the Forex Market
?What is the Forex Market
The foreign exchange currency market, or forex market, is the “place” where currencies are traded. The forex market is the largest and most liquid market in the world boasting an average traded value greater than $1.9 trillion a day that includes all of the currencies in the world. In terms of the total cash value traded the FX market has the largest market value in the world and is open to any individual, firm or country.
The reason “place” is in quotations is because there is no central physical marketplace for the exchange of currencies like there is for stocks or commodities; trade is instead conducted “over the counter” or essentially from anywhere with an internet connection between traders around the world, rather than in one centralized location. The forex market is also sometimes referred to as the “FX market” or the “spot currency market” and is open 24 hours a day, five and a half days a week , currencies are traded across the globe in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney. Since trading takes place across almost every time zone, when the trading day in the U.S. ends, the forex market starts a new day in Tokyo and Hong Kong. A result of this round-the-clock price movement is that the market can be extremely active any time of the day with.
In the above paragraph we mentioned that the forex market is sometimes referred to as the “spot currency market”. Beginning traders often are confused by or do not understand the difference between the spot currency market and the futures currency market. The spot market is where various currencies are bought and sold according to the current price. Forex trading in the spot market has always been the largest because it reflects the “underlying” real asset that the futures market is based on. The futures market used to be the most popular way for traders to exchange currencies simply because it has been much longer than the spot forex market. However, with the invention of electronic trading over the internet, the spot market witnessed a huge surge in activity and now far surpasses the futures market as the trading market of choice for individual speculators and investors. Generally when people refer to the forex market, they are referring to the “spot” forex market and not the futures market.
The futures market tends to be used more heavily among companies that need to hedge their foreign exchange risks out to a specific date in the future. The futures market does not trade in actual currencies like the spot market does. Instead they deal in contracts that represent agreements to deliver a certain currency type at a specific price per unit and at a specific date for settlement. Futures contracts are bought and sold based upon a standard size and settlement date via public markets like the Chicago Mercantile Exchange. The exchange acts as a counter part to the trader, providing clearance and settlement.
So to the beginning trader or investor, the most significant points to understand regarding the spot forex market and the futures market is that the spot market is trading in the actual underlying asset and is easier and cheaper to get started trading in than the futures market which deals in contracts instead of the actual underlying currency asset. You are likely to run into the terms: forex, foreign-exchange market, currency market, and FX. All of these terms are synonymous and all refer to the forex market.
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المصدر | 4uinvestment
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