The Foreign Exchange market (also known as Forex, Currency Markets, FX) is the largest financial market in the world.
Market participants include Banks, Hedge Funds, Governments, and high net-worth individuals.
It is about three times larger than all of the stock markets in the world combined.
In the stock market, you are trading individual companies. In Forex, you trade whole economies.
There is no central market place – it is currently an unregulated market with no central exchange (unlike the stock and commodity markets).
Individuals that do not trade Forex for banks, hedge funds and other financial institutions (i.e. people like you and me) are known as retail traders.
As retail traders, we can greatly benefit by trading the Forex market. This is due to the sheer volumes of currency being exchanged across the globe.
We call this a highly liquid market. You will hear this word all the time; it just means that there are great numbers of buyers and sellers out there, doing deals round the clock.
Thanks to the power of the Internet, there are now plenty of FX brokers that allow retail traders to bet on the movement of currencies from the comfort of their own home.
In any market, you have to buy or sell a product. In Forex, you buy or sell a country’s money. Let’s say you are going on holiday to the USA. You go to the Bureau de Change and sell your national currency, e.g. EUR, in order to buy US Dollars.
The cost of doing this is the difference between the two exchange rates. Effectively, you are doing a Forex trade. You have probably traded Forex in your life many times without realising it!