subject: What Is Forex? The Basics for Novice Traders [print this page] What Is Forex? The Basics for Novice Traders
Forex is the foreign exchange market, also known as the FX or currency market, which is a mechanism for the global trading of currencies.
The original purpose of the Forex market was to facilitate international trade by enabling a business to trade and pay for goods in a foreign currency. However in recent times the Forex market has developed to support the speculative trader who uses the market and make short term profits from the movement of the currencies.
The Forex market is easily the largest and most liquid market in the world with current daily turnover of around $4 trillion.
The main trading is centred in London and New York which account for over 50% of all the Forex activity.
Traditionally the currency market has been a closed shop accessible to only the banks and large institutions, however due to recent developments in technology and deregulation, the Forex market is now accessible to anyone that wants to get involved.
This new accessibility to the currency market has increased the opportunity for the speculative traders to trade forex and this opportunity has been seized upon to such an extent that speculative trading now accounts for between 70% and 90% of all Forex trading activity.
All currencies are available to trade in the Forex market but the main currencies traded each day are the US dollar, the Euro, the Japanese Yen and the Pound Sterling which, combined, account for over three quarters of the daily global turnover.
Trading methods vary greatly but are essentially divided into two key areas being fundamental analysis, which is trading using current economic news to determine the trading decision, and technical analysis, which uses mathematical (or algorithmic) analysis to calculate a trading decision.
The algorithmic method is growing in popularity which is often refined into an entirely electronic trading solution and this method now accounts for around 25% of all trading activity.
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