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What Is The Forex Market?

By Charles Hopkins Published 10/14/2006 | Finance

Amongst the financial markets in the world, the Foreign Exchange market, or Forex market, is the largest and most liquid. It has no physical location or  central base and is not covered by any time zones. It is operated by banks, corporations, and individuals, electronically inside a virtual trading room. Yet, the volume of money that it handles surpasses four times that of the collective amount of the US financial markets. It is a market that is not operated singularly by a specific country, but is kept alive by multitudes of transactions conducted by entities of different nationalities. In one sentence, the Forex market is based upon the buying and selling of world currencies.

Forex market prices currencies by pairs. Each transaction is done by buying a specific currency and/or selling another. Trading is, thus, defined by these two actions: buying and selling. A good trade is made by buying a currency with a current low market price that is expected to eventually rise, and selling another currency at a present rate higher than when it was initially bought. The behavior of world currencies is what makes transacting at the Forex market difficult. There is no specific clue regarding the behavior of a currency, although there are a multitude of factors that can give traders an idea of its movement.

Traders at Forex markets usually use two different approaches in analysis: the fundamental analysis or the technical analysis. The fundamental analysis covers all factors affecting a currency excluding the price action. Such factors normally include the economic, political, and social situations of the country where the currency is traded. The country's interest and economic growth rates, its inflation, and the current unemployment status of a country have a bearing on its currency. The technical analysis, on the other hand, is focused only on the price trends of the currency. Fundamental analysis is more on the long-term projection while technical analysis is more on the short-term projection.      

Previously, companies or individuals did not have direct access to the Forex market; they could enter the market only through piggybacking on the transactions made by banks, but with the birth of the Internet, almost anyone who has internet connection and the guts to lay their finances on the line can have a piece of action at the Forex market.

Transacting at the Forex market can be very frustrating for the uninitiated, but it is a source of success for people who take time to study and learn the tricks in the market. Trading skills can only be acquired after a long period of practice. Initially, it is much wiser to trade in an online Forex trading website for practice. Monitor the progress of trading until such time that enough confidence is present to be able to transact at an actual Forex trading room. However, before joining the real thing, people are always warned that a trader must risk only his spare money to avoid major trouble in the future.