Forex or the Foreign Exchange is a term used for the exchange of currencies from different parts of the world. Technically, Forex is defined as a ‘form of exchange for the decentralized global trading of international currencies’. Banks – Interbanks and Central Banks, Multinational Commercial Companies, Governments, Investment Management Firms, Traders Including Retail Foreign Exchange Traders, Non-Bank Foreign Exchange Companies, and Investors are the primary functionaries in the Forex Market, which serves as a forum for the exchange of and speculation on currencies.
Growth of the Forex Market
In comparison to other financial markets, presently, the Forex market is the largest and most liquid financial market in the world that has reached an average daily turnover of US$ 3.98 trillion since April 2010. A number of important factors are responsible for the growth of Forex Market, also known as ‘Fx market’, ‘Currency market’, ‘Foreign exchange currency market’ or ‘Foreign currency market’:
- The foremost factor is the increased acceptance of foreign exchange as a proper asset class.
- Then there has been a massive rise in the Forex trading activity by ‘high-frequency traders’.
- The growth of the retail segment and the coming of retail investors have also positively affected the Forex market.
- Further electronic execution and online marketing have eased and simplified the entire trading process, bringing in more traders and more transactions on board, resulting in amplified liquidity and thus growth of the Forex market.
Exclusive Features of the Forex Market
- As mentioned earlier, the Forex market is the biggest and most liquid financial market in the world.
- The Forex market operates 24*7, five days a week, that is from 20:15 GMT on Sunday till 22:00 GMT on Friday.
- The geographical dispersion is a key feature of the Forex market. Unlike the stocks market, there is no central marketplace for the Forex market, and the Forex trading is ‘conducted over the counter’.
- The United Kingdom is the most important Forex trading centre accounting for 36.7% of the total turnover, followed by United States (17.9%) and Japan (6.2%).
Forex Trading is basically about trading currencies from various countries against each other. The principle behind Forex trading is to speculate about the price of one currency against another currency. Evidently, there is a good amount of risk involved in Forex trading. However, successful trading can reap huge profits. Few reasons that make Forex trading so popular include:
- The Forex market is open 24 hours a day, except on weekends, making it an excellent avenue for anyone who wants to earn a handsome income by working at any time of the day.
- Online Forex trading platforms have improved trading experience in over 14 different languages, facilitating traders from across the globe to trade in a language that they are most comfortable in.
- Forex markets offer the highest liquidity, which ensures minimal price movement and greater profits.
- The ‘leverage’ is a huge benefit that attracts traders towards the Forex domain; since Forex brokers allow traders to trade at 50:1 leverage. Simply put it means a trader can trade for $ 50 in the market for every $ 1 in his account.