Basically, forex, also known as FX or foreign exchange, is a global market which lets a trader exchange two currencies against each other. If you forecasted that one currency will be stronger than the other, and you correctly got it that is when you make a profit.
When you travel to another country, you normally have to look for a booth for exchanging currency at the airport, then exchange the money you have inot the currency of the country you are to visit. In a counter and on the screen display is flashed with exchange rates for different currencies.
The exchange rate is the comparative value of the two currencies from two varied countries. Exchanging one currency to another is somehow, already participating in the forex market.
For instance, say, you are an American who is visiting Japan, you have sold your dollars and purchased yen. Before flying back home, you stopped by the booth to exchange your yen noticing the changes in the exchange rate. These changes in the rates are what will let you earn money in the forex market.
The foreign exchange market is a worldwide, decentralized market wherein the currencies alter hands. Exchange rates are changing by the second, thus the market is continually in flux. Only a small portion of currency transactions occur in the real economy which includes tourism and international trade.
In its place, most of the transactions that take place in the world’s forex market are sold and bought for the reasons of speculation.
Currency traders buy currencies with the hope that they will bet to sell them at a higher value in the future. Take a moment and put this in perspective:
The biggest stock market globally is the NYSE or the New York Stock Exchange which trades a daily average of $22.4 billion. That volume seems intimidating and that it really works out. NYSE sounds so loud and it likes to make noise. Yet, if you will compare it to the FX market, it only looks like a tiny monster.
It is very hard to identify the accurate volume of the retail section of the foreign exchange market, but it is assumed to be about 3 to 5% of the overall daily foreign exchange trading values, or more or less $200-300 billion.
The market of foreign exchange is certainly huge, but not as what others would like to feed your belief about it. Do not believe the hype that the forex market is $6.6 trillion. This number may sound impressive, yet it is a bit misleading. Let us not exaggerate. Keep it real.
Regardless of the size the market also closes rarely. It is virtually open round the clock. The foreign exchange market is 24 hours a day and 5 days a week open, and closes down only during weekends.
Thus, unlike the bonds or stock market, the foreign exchange market does not close down each time a business day is ending. Instead, it just changes to diverse financial centers all around the globe.