Forex is a global currency market where various currencies and financial instruments, such as securities and precious metals, are traded. The term “Forex” is a shortened form of “foreign exchange.”
The Forex market is known for its high volatility and liquidity, attracting many traders worldwide. It facilitates various currency-related operations, including trading, investment, speculative activities, regulatory measures, and hedging transactions.
The Forex market, along with the activities of individual brokers, is regulated by law in most countries. Typically, obtaining the appropriate licence is required to offer brokerage services in the Forex market.
History of the Forex market
Currency exchange has been practised since ancient times, and by the 19th century, the currency market as we know it today had begun to take shape. The free currency market, without fixed exchange rates, emerged only after the abandonment of the “Gold Standard” — a system in which currency values were tied to gold.
This shift first occurred in the United States in 1971. With the introduction of the floating exchange rate system, currency quotes started to be determined by supply and demand. As technology advanced, particularly with the advent of the internet, the Forex market became accessible to participants worldwide.
Features of the Forex market
A distinctive feature of the international Forex market is the absence of a central marketplace or an official website. Instead, currency transactions are conducted over the counter (OTC) in electronic format. These transactions do not take place on a centralized exchange but are carried out through computer networks connecting traders worldwide.
Additionally, the Forex market has several other notable features, including:
- round-the-clock access 5 and a half days a week from anywhere in the world;
- the possibility of instant online conversion of various global currencies;
- guaranteed liquidity for each transaction;
- the opportunity to trade large amounts with small investments through leverage;
- high volatility in exchange rates.
An interesting fact: There is a “stock market slang” that includes jargon popular among traders. These terms often originate as abbreviations of longer expressions or have traditional meanings. Some of the most well-known slang terms are “short,” “long,” “gap,” “glass,” “cable,” “bulls,” “bears,” and others.
Market participants
Participants in the Forex market can be categorised into three main groups:
- Traders: Individuals who engage in trading operations directly. Traders use the services of Forex brokers to access the market.
- Brokers: Intermediary firms that provide traders with access to Forex trading and offer the necessary tools for a commission.
- Liquidity providers: Organisations that influence currency market quotes. This group includes international banks, central banks, large multinational companies, investment funds, and currency exchanges.
It is important to note that the Forex market is high-risk, with the potential for both significant profits and substantial losses.
