subject: Forex Explained [print this page] Forex Explained Forex Explained
The forex (short for foreign exchange) market or foreign exchange currency market is a wide world. It is decentralized and accessible to all: when a tourist in Tokyo buys dollars with yen, it performs a transaction on the forex market - just as when a multinational converts millions of Euros in pounds sterling. This makes it the largest market in the world, rendered volatile by the large volume of transactions; it is also always open, except on weekends.
Many clients seek only forex trading foreign currency against theirs, as companies needing to pay wages somewhere other than where they sell. But a large part consists of currency dealers who speculate on movements in exchange rates - in the manner of those who are on the evolution of stock prices.
Exchange rates fluctuate due to macroeconomic developments and events and expectations that traders have, in addition to actual cash flows. This market attracts investors because its volatility provides many opportunities for profits (and losses, of course), while allowing the use of hedging instruments are well known. A further advantage is that the forex broker authorizes the use of leverage by requiring that their investors in low margins.
On the forex market, currencies are traded against each other by "pairs", which represent the relative value of a unit of currency, the "base" against another currency, the "cons". They are usually written by juxtaposing the three-letter codes international currencies, starting with the base, for example, EUR / USD is the ratio of the euro against the U.S. dollar.
Like all markets, there is a difference between purchase price and selling on forex, called gap between demand and supply. It is measured in "pips," the smallest difference in price as a given exchange rate can offer - and generally equal to one hundredth of a percent. For major currencies, the difference between the price at which a market player will buy ("Application") to a customer and that which he will sell ("Offer") is often between one and three pips.
The market is divided into three access levels: at the top is the interbank market, including the largest banks and securities dealers, who generally perceive sharp differences. Smaller banks and large multinational corporations come later, followed by pension funds and asset managers. Traders, who bring up the rear, participate indirectly through brokers or banks, and constitute a part of growing market through the facilities offered by the Internet.
