“Forex” or “FX” is the common name
for the Foreign Exchange market. The cash forex market is also known
as the spot Forex market, which is the largest financial
market in the world. With a daily turnover of over $3 trillion,
the spot Foreign market conducts more than three times
the aggregate amount volume of the United States Equity and
Treasury markets combined. Unlike other financial markets,
the spot Forex market has no physical location or central exchange.
It operates through an electronic network of banks, corporations,
and individuals trading one currency for another. Since the
spot Forex market lacks a physical exchange, the market trades
continuously on a 24-hour basis, moving from one time zone
to the next, across each of the world’s major financial
centers every day.
It should be noted that retail traders seeking to trade the
spot Forex market do not participate in the interbank market. Rather, they would
trade through retail Forex brokerages, which are more accurately
described as market-makers and dealers. Among other things, this means that
retail Forex broker-dealers take the opposite side of their clients' trades, so that
when the client is on the losing side of a trade,
it is the retail Forex broker-dealer who is on the winning side, and vice versa.
See the page "Futures vs. Spot Forex"
for a more detailed discussion of this important point.
The term “foreign exchange” means the simultaneous
buying of one currency and selling of another. Currencies
are traded in pairs, for example Euro/US Dollar (EUR/USD)
or US Dollar/Japanese Yen (USD/JPY).
The best trading opportunities for speculators occur in the
most liquid (i.e. most commonly traded) currencies such as
the US Dollar, British Pound, Australian Dollar, Japanese
Yen, Eurodollar and Swiss Franc. Often referred to by traders
as “the Majors”, these currencies account for
well over 85% of all daily Forex transactions.
In addition to the spot Forex market, there is the futures Forext market.
There are many significant differences between the futures and spot Forex markets.
Traders should carefully consider these differences before deciding which market best suits their
financial needs and goals. See the page "Futures vs. Spot Forex"
for a succinct summary of the differences between futures forex and spot forex.
