A rare person, at least a little interested in economics, finance or earnings on the Internet, has not heard about the concept of "Forex". Forex (an acronym for FOReing EXchange, "foreign exchange") is a worldwide currency exchange market.
Although Forex is often spoken of as a market where currencies are traded, it is correct to talk about the exchange. After all, any transaction here is a simultaneous sale of one money and the purchase of another.
That is, Forex traders (they are usually called traders) always deal not with a single currency, but with currency pairs. For example, it may be the pair "American dollar vs Japanese yen" or "English pound vs Swiss franc", etc. Currency pairs are commonly denoted as fractions, wherein the numerator and denominator there are three-letter symbols of currencies: USD/JPY, GBP/CHF and so on. Moreover, the order of coins in pairs is constant, that is, for example, the pair "Euro-Yen" is always denoted as EUR/JPY, not JPY/EUR.
Each pair has its price, called a quote. That is, the quote of a currency pair shows the ratio of the unit value of one currency of the pair to the unit value of another currency. These quotes are continually changing under the influence of supply and demand — similarity of the stock and commodity market to the currency one. But there are also significant differences. First of all, the Forex market is not tied to any organizations and structures, such as stock exchanges. Currency exchanges, of course, exist, but they are not the primary and system organizations, such as stock exchanges in the securities market.
Transactions occupy most of the currency market with immediate execution. However, Forex also works with derivatives such as forward contracts, currency futures and options. But still, the lion's share of trading is made up of instant (or, as they are called, spot) transactions.
Phone vs Internet
The vast majority of transactions in Forex are carried out via the Internet. Some brokers allow to manage client trades over the phone, but this is instead a rare exception. And even so - applies only to large transactions. In fact, before the widespread use of high-speed Internet access, Forex was almost exclusively the domain of professionals. Now trading in the foreign exchange market can be engaged virtually anyone.
Middle Age Market
And it all began in the 1970s when the crisis and the subsequent dismantling of the Bretton Woods financial system led to a shift from rigid exchange rates to floating, free-form supply and demand-driven currencies. This was how the world currency market was formed. At first, trade volumes were relatively low. Thus, the daily turnover of the Forex market in 1977 is estimated at 5 billion dollars. But since the beginning of the widespread use of electronic trading tools and services for the instantaneous provision of quotes, the currency market has been experiencing rapid growth. Thus, in 1992, the turnover of Forex-a reached 1 trillion dollars a day. And by 2020, the daily trading volume, according to experts, will be about 10 trillion dollars. Today Forex is the largest financial market, surpassing by many times the turnover of all stock and futures markets combined.
Who trades on the Forex market? These are national banks from different countries, commercial banks, various investment, hedge, pension funds, and individuals, both professionals and amateur traders, often trading in Forex just for fun.
Brokerage firms are essential players in the currency market. Their task is to provide traders with access to the market. Brokers offer their clients with software for trading, report currency pair quotes, as well as keep traders' deposits and pay their profits (or charge losses). Brokers may act as specialized companies or some commercial banks.
Not only speculators
There are two types of traders on the currency market. One of them performs operations to exchange one currency for another (for export and import operations, currency reserves, etc.). Others buy and sell, sell and buy currency pairs to profit from favourable changes in quotes.
The secret of success
Of course, quotes do not always change in the necessary direction for a trader. Therefore, not only do they earn on the currency market, but they often lose a lot of money. But it does not mean that only superprofessionals can make money at Forex. Do not believe the gossip that claims that Forex is a lottery or worse - "lottery". It's just that many novice currency traders forget (alas, sometimes not without the help of unscrupulous brokers) that success in Forex (as in almost any other) requires knowledge, work, patience and a little luck!