Currencies, stocks and similar types of products are traded in the forex market. To get the value of a foreign currency, one currency is pitted against the other. The value of the foreign currency is then considered when trading stocks in the forex market. Most countries of the world have full control over the value of their own currency. The players in the forex market include banks, large business enterprises, governments and financial institutions.
How is the forex market different from the stock market?
For forex trading to happen the primary requirement is that there should be two countries and two currencies. The forex market span is worldwide whereas the stock market is specific to the home country only. Most transactions which take place in the forex market are usually done through the assistance of a broker or a financial institution such as a bank.
What are the constituents of the forex market?
Essentially the forex market comprises of a large number of countries with their corresponding currencies. Those dealing with this market are dealing with enormous amount of money on a daily basis. All the transactions in the forex market are done in cash or liquid assets which can readily and immediately be turned into cash. Consider the forex market to be huge, much larger than the stock market of any country. Forex trading is done on a continuous basis and it never closes since the time zone through out the world is changing all the time. While one market closes, another opens. Hence the forex market is open every day of the week through the 24 hours. While it might be closed on very rare weekends, usually it remains open on all weekends. On many occasions, forex trading is completed during the weekend.
While the number of people across the world who are involved in forex trading is countless, so is the money transacted. In fact, in 2004, the daily average amount of money traded in the forex market was nearly two trillion dollars. Imagine a billion dollars, then a trillion and then think twice the amount – this was the volume of money which changes hands every day of the week, round the year.
The forex market is not a new entity and has been in operation now for almost 30 years. The increase of computer usage followed by the advent of the internet, the forex market is now accessible to more and more people round the world. More and more people and businesses are becoming aware of such a market and the possibility of trading in this giant market place. Presently forex accounts for approximately 10% of the total money traded between two countries, but with the increase in its popularity, this figure could change dramatically in the next decade.
