What is the forex market?

The availability ,easy access and the numerous choices offered by brokers stimulate our imagination and increasing our interest in the forex market. For most of the people it is still a little-known market with diverse, sometimes extreme associations. It is time to take a closer look and answer the question: What is the Forex currency exchange market?

Forex is an abbreviation of the term “foreign exchange”. This is how we call the international foreign exchange market, which is the largest and most liquid trading market in the world, where all the major currencies are purchased and sold.

The trade consists in the exchange of currencies through a platform provided by the broker. The main assumption is that the value of the currency that we’ve just purchased will increase in relation to the value of the currency that we’ve just sold. The attractiveness of this type of transaction may result from the fact that in times of high volatility and uncertainty concerning other financial instruments, the currency market allows traders to make a profit or a loss both on decreases and increases of the given instrument.

Unlike the stock exchange, which has its headquarters, for example, in Warsaw, London and Tokyo, the forex market does not have a physical location, nor a main supervisory authority, and only exists in the electronic form. All transactions are conducted via the Internet, telephone or fax.

The forex foreign exchange market works almost non-stop from Monday to Friday. Trading starts on Sunday at 23.00 CET, and ends on Friday at 22.00. This means that traders can conclude transactions at any convenient time, and thanks to the mobile applications offered by brokers, also from any location.

The international currency market plays a very important role in the world economy, providing the liquidity of currency exchange on a global scale. The most important forex centers of the world include Sydney, Tokyo, London, Frankfurt and New York, and the main traded currencies include USD, EUR, JPY (Japanese yen), GBP (pound sterling), CHF (Swiss franc), CAD (Canadian dollar) and AUD (Australian dollar). The daily turnover on the forex market reaches approximately 5 trillion USD.

The forex market is not subject to a single set of standards applicable around the world. The transaction parameters are each time determined by the brokers.

When deciding to enter this market, we must first select a broker with whom we will establish cooperation. The two most popular types of brokers are MM (Market Makers) and ECN (Electronic Communication Networks). MM brokers act as the organizers of their own market for the participants, using the quotations from the interbank market, and the client concludes transactions directly with them. The ECN brokers are not the opposing party of the transaction, and they pass the orders of the clients directly to the global forex market. Transactions are therefore concluded between the traders and other market participants, which include other brokers, individual investors, as well as banks and funds. One example of the ECN type broker operating on the Polish market is Xbulls.