What Is Forex Market? How Does It Work?

The word forex is formed from the combination of the words foreign currency (foreign currency) and exchange (exchange) in English. Foreign exchange (foreign exchange) is the name given to the process of converting a country’s currency into the currency of another country, usually for reasons such as trade, trading or tourism. According to the latest three–year report of the Bank of International Settlements (BIS), which is a kind of center of central banks around the world, the daily volume of forex trading has reached $ 5.1 trillion.

What Is Forex Market?

The Forex market is the market where foreign exchange transactions take place. Whether they are aware of it or not, currencies are very important for many people around the world because foreign exchange has to be traded in order for foreign trade and international business to be done. If you live in the USA and want to buy cheese from France, you have to pay the brokerage firm or you have to pay the French in euros (EUR). The same applies to travel. A French tourist cannot pay euros to see the pyramids in Egypt because that is not the accepted currency in the local sense. Just like the cheese buyer, the tourist must convert their euros into Egyptian pounds at the exchange rate at that time.

The only distinctive feature of this international market is that there is no specific central market for currency exchange. Instead, currency trading takes place over-the-counter, known as “over-the-counter (OTC)”. Over the counter, the intention is to Decode computer networks between traders all over the world without any central location. The market is open 24 hours a day, 5.5 days a week, and currency trading is carried out in cities such as London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney, which are the financial centers of the world (in almost all time zones). In other words, when the trading day ends in the US, it just starts in Tokyo and Hong Kong. In this way, the forex market can be extremely mobile at any time of the day and prices are constantly changing.

What Is Forex Market? How Does It Work?
What Is Forex Market? How Does It Work?

A Brief History of Forex

The forex market as we know it today is a very new market, unlike stock markets whose roots go back centuries. Of course, forex in the simplest sense of the word (people convert one currency to another in order to get a financial advantage) has existed since nations began printing money. However, today’s forex market is a relatively new and modern invention. With the Bretton Woods agreement signed in 1971, more major currencies were allowed to freely exchange with each other. The values of currencies have become constantly changing, which ultimately led to the development of currency trading and trading services.

Commercial banks and investment banks conduct most of the transactions in the forex markets on behalf of their clients. However, individual and professional investors can also benefit from the speculative opportunities necessary to convert one currency to another profitably in these markets.

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