FOREX is the abbreviation for “Foreign Exchange”, which is also known as the currency market. The basic activity that takes place in Forex is the trading of one currency for another, which is one of the largest businesses of the world today.
Traders active In the Forex markets usually just opt for the basic transaction in which they get a foreign currency exchanged for the one that they want. These are usually owners of multinational corporations who have to pay wages and deal with company expenses in all of the countries that their business is based in. However there is more to the currency market than just the exchange of nationalities of the currency in question.
The largest portion of the Forex Market is comprised of currency traders who observe movements in the exchange rates and try to predict future changes much like those who speculate stock market dynamics. Currency traders know how to capitalize on the minutest fluctuations in exchange rates which keeps their businesses afloat.
Inside the foreign exchange market, there is barely any inside information about the happenings within the complex structure of the foreign exchange market. The fluctuations in the exchange rates happen due to the levels of tangible monetary flows, along with based on speculations on the global macroeconomic conditions of the times. Important news related to Forex is released in public every so often, and the basic rule, at least theoretically is that news on the Forex, especially about the exchange rate flux is received simultaneously by the entire world at the same time.
The exchange works inside the market by trading currencies against each other. Each pair of currencies exchanged makes up an individual product and is hence noted traditionally with the representation XXX/YYY where YYY is the ISO 4217 international three letter code of the currency which is being converted into the price of a singular unit of XXX currency which is expressed. An example of this would be when converting US Dollars into Euros; you express it by writing EUR/USD (international three letter codes for the respective currencies). Typically this would be represented as 1 EUR= 1.2045 USD.
Forex is not structured like stocks or futures exchange. Forex is an actual interbank, which functions as an over-the-counter market, which denotes that there is no universal exchange rate for any specific currency pair.
The Forex is under operation 24 hours a day, seven days a week between individuals who interact with Forex brokers, brokers who then interact with banks and then banks which further have dealings with other banks. The process is continual and it is happening on a global basis. For example if there is an Asian session concluding, there will certainly be an European session starting up somewhere, enabling the world currencies to remain in constant trade.
Traders in the Forex can only respond to news about the market when it breaks rather than waiting for its business hours to begin, as other markets have to contend with. Individual currency speculators can pursue the Forex during the evening trade, capitalizing on the market’s 24 hour long trade timings.