What is Forex?
If you've
ever traveled to
another country, you
usually had to
find a currency
exchange booth at
the airport, and
then
exchange the
money you have
in your wallet
(if you're a
dude) or purse
(if you're a
lady) or man
purse (if you're
a
metrosexual) into the
currency of the country you are visiting.
You go
up to the
counter and notice
a screen displaying
different exchange rates
for different currencies.
You find
"Japanese yen"
and think to
yourself, "WOW! My
one dollar is
worth 100 yen?!
And I have
ten dollars! I'm
going to be
rich!!!" (This
excitement is quickly killed when you stop by a shop in the airport afterwards
to buy a can of soda and, all of
a sudden, half your
money is gone.)
When you do this,
you've essentially participated in the forex market! You've exchanged one
currency for another. Or in
forex trading terms,
assuming you're an American visiting Japan, you've sold dollars and bought yen.
Before you fly back
home, you stop by the currency exchange booth to exchange the yen that you
miraculously have left
over (Tokyo is expensive!) and notice the
exchange rates have changed. It's these changes in the exchanges
rates that
allow you to make money
in the foreign exchange market.
The foreign
exchange market, which
is usually known
as "forex" or
"FX," is the
largest financial market
in the world.
Compared to
the measly $74
billion a day
volume of the
New York Stock
Exchange, the foreign
exchange market looks
absolutely ginormous
with its $4 TRILLION a day trade volume. Forex rocks our socks!
Let's take a moment to
put this into perspective using monsters...
The largest stock market in the
world, the New York Stock
Exchange (NYSE), trades a volume of about
$74 billion each
day. If we used a
monster to represent NYSE, it would look like this...
You hear
about the NYSE in the
news every day...
on CNBC... on
Bloomberg...on BBC... heck,
you even probably
hear
about it at your local
gym. "The NYSE is up today, blah, blah". When people talk about the
"market", they usually mean
the stock market. So
the NYSE sounds big, it's loud and likes to make a lot of noise.
But if you actually
compare it to the foreign exchange market, it would look like this...
The currency market is
over 53 times BIGGER! It is HUGE! But hold your horses, there's a catch!
That huge $4 trillion
number covers the entire global foreign exchange market, BUT retail traders
(that's us) trade the spot
market and that's about
$1.49 trillion. So you see, the forex market is definitely huge, but not as
huge as the media would
like you to believe.
Do you feel like you
already know what the forex market is all about? We're just getting started! In
the next section we'll
reveal WHAT exactly is
traded in the forex market.