Forex, also known as foreign exchange, is the largest and the most liquid market in the world. Its retail part has come with the development of the Internet. This allowed retail clients to trade Forex online via various trading platforms. Forex opened its doors to retail clients in the late 1990s. At this time, the first retail online brokers started their operations. Forex, as a market had been functioning for decades before that, it was just that it only accepted institutional clients. Currently there are trillions of US dollars traded daily on the Forex market, with retail clients contributing nearly 5% of the total volume or around 250 billion US dollars in daily turnover. Why is the Forex market so large? Large multinational trade companies, financial institutions, hedge funds and lots of other companies require foreign currencies to operate their businesses. As you may understand, one currency is bought online for another currency, and this creates quite a reasonable flow of funds. In other words, Forex is the global place for trading currencies
People have been trading one currency for another since the beginning of time. However, the modern foreign exchange or Forex industry started developing after the Bretton Woods accord in 1971 that allowed national fiat currencies to float freely and all exchange control was eliminated.
Forex trading is the act of buying or selling currencies. Banks, central banks, corporations, institutional investors and individual traders exchange foreign currency for a variety of reasons, including balancing the markets, facilitating international trade and tourism, or making a profit.
The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: 1 USD is worth X CAD, or CHF, or JPY, etc.
How do traders make money online? The mechanics behind trading are rather simple. You are acquiring an asset for a favourable price and you expect to get rid of this asset. The more volatile the market is, the more opportunities there are to acquire and get rid of the assets you have. As you may understand, if the market is not moving, holding your capital in it makes little sense.
With daily turnover reaching $5.1 trillion,* forex is the most liquid market in the world. This liquidity often results in more actionable prices and unlike other financial markets, traders can respond almost immediately to currency fluctuations, whenever they occur – 24 hours a day, 5 days a week.
This is a direct result of its size. As opposed to other markets, the Forex market is so huge, it cannot be effected by one individual person or institution. So, the retail trader, for all intents and purposes, is on the same “level” as the largest bank when it comes to Forex trading. The Forex market cannot be manipulated.