The foreign exchange market
Forex is the combination of the two words – Foreign Exchange. But this is not the exchange of one currency to another as it happens in, for example, money exchanges – this is a fast-growing international currency market that was created in 1971 when international trade switched from fixed to free currency exchange rates. Since then the price of a currency in comparison to another was set to the participants of the currency market based only on the demand and the supply. This was justified with the classic idea of how the impossible-to-control market demand and supply will always find the most profitable and balanced prices.
The aim of every market is to buy a product cheaper and sell it for a higher price. The Forex market is no exception and the product in this market is the foreign currencies. Just as any other product, currency has its price.
Most of the transactions in the Forex market are speculative. On every operation that is connected with trade or investments there are nine speculative operations. When comparing the miniscule profits banks earn by doing other commercial operations, the profit that can be obtained in just a minute in the currency market even because of the tiniest changes seems too tempting to resist and attracts the banks to the market.
The trader – as a profiteer works either for himself or for a company
The main indicators of a market that attract a big number of brokers, transactions companies, investment funds, large institutions and many small investors are:
- Market liquidity;
- Constant access (24 h access, except for the holidays);
- A small first payment for entering the market;
- The opportunity to use modern devices and hardware, for example, the internet.
The trade in the currency market is active 24 hours a day and it is being controlled because the political and economical events in the world constantly change.
The international currency market:
- Does not have a specific place for completing transactions – they are performed all around the world;
- Does not have specific working hours – the transactions are being made day and night (except for the holidays);
- Does not have influence “from above” – the prices are set only by the demand and the supply;
- Has the biggest speed and liquidity – everything happens at a second’s notice.
Taking into account all of this, Forex is the most unbiased market because individual participants would have to work with tens of billions of dollars to change the prices in the market for their profit. This is why there is practically no way for the individuals to act venturous.