What is Forex ? Kasım 02
The Foreign Exchange Market – more commonly known as FOREX - is a the global market for trading currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week.
Daily exchanges average approximately $2 trillion (US dollars). In comparison, the United States stock markets, like the New York Stock Exchange and the NASDAQ, handle only about $100 billion a day. (Only about 5% of the size of the daily FOREX market)
The Foreign Exchange Market was established in the early 1970s with the abolishment of fixed currency exchanges under President Nixon. Currencies became valued at ‘floating’ rates determined by supply and demand.
The FOREX grew steadily throughout the 1970’s, but it was the technological advances of the 80’s that allowed FOREX to grow from trading levels of $70 billion a day to the current level of around $2 trillion.
The FOREX is made up of about 5,000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency exchange.
There is no centralized location for the FOREX – major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt, and all trading is by telephone or over the Internet. Businesses use the market to allow them to buy and sell products in foreign countries. However, most of the activity on the FOREX is from currency traders who use it to generate profits from small movements in the market.
Even though there are many huge players in FOREX, it is accessible to the small investor thanks to recent changes in regulations. Previously, there was a minimum transaction size and traders were required to meet strict financial requirements.
With the advent of Internet trading, regulations have been changed
to allow large interbank units to be broken down into smaller lots.
Each lot is
worth about $100,000 and is accessible to the individual investor through
‘leverage’ or ‘margin’ – loans extended for trading. Typically, lots
can be controlled with a leverage of 100:1 meaning that US$1,000 will
allow you to control a $100,000 currency exchange.
There are many advantages to trading in FOREX.
● Liquidity - Because of the size of the Foreign Exchange Market, investments are extremely liquid. International banks are continuously providing bid and ask offers and the high number of transactions each day means there is always a buyer or a seller for any currency.
● Accessibility – The market is open 24 hours a day, 5 days a week.
The market opens Monday morning Australian time and closes Friday afternoon New York time. Trades can be done on the Internet from
your home or office.
● Open Market – Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time – there can be no ‘insider trading’ in FOREX.
● No commission – Brokers earn money by setting a ’spread’ – the difference between what a currency can be bought at and what it can be sold at.
