What is Forex?
The word Forex was made by joining initial syllables of two words Foreign and Exchange. Forex is the process of converting one currency to another for business and personal purposes .The Average trading volume of forex market is $6.6 Trillion per day.
The $6.6 trillion break-down is as follows:
- $2 trillion in spot transactions
- $1 trillion in outright forwards
- $3.2 trillion in foreign exchange swaps
- $108 billion currency swaps
- $294 billion in options and other products
What is Forex Market?
The foreign exchange market is where the currencies are traded. Currencies are important because they allow us to buy goods and services locally and across borders. International currencies need to be exchanged for foreign trade and business.
If you live in the United States and want to buy perfumes in France, it means that you will have to pay for perfume in euros (EUR). This means that the U.S. retailer will have to exchange the same amount of U.S. dollars (USD) in euros.
The same goes for walking. A French tourist in Egypt cannot pay in euros to see the towers because it is not a local currency. The visitor has to exchange euros in local currency, this time the Egyptian pound, according to the current exchange rate.
Where is Forex traded?
Forex is traded through three different markets;
- Spot Market
- Future Market
- Forward Market
Why people trade Forex?
Forex is traded mainly for two purposes; Speculation and Hedging.
Speculation is used by traders in order to make money from rising or falling of currency rates. Hedging is used by manufacturers to look prices in order to avoid losses arising due to currency conversion fluctuations.