Foreign exchange (aka forex) is an off-exchange retail foreign currency market where participants purchase currency in exchange for another (at the current exchange rate).
Forex can affect the lives of everyone, regardless if you don't travel overseas or don't invest in currency. Today's world of commerce is such an international one that happenings on the other side of the world can ripple out to all nations.
China is a perfect example of this. The government in China regulates the exchange rate of their currency, and many believe the currency to be undervalued. A undervalued currency means Chinese made goods can be purchased for "less" on the international market. Were the Chinese government to allow the market to dictate the exchange rate the effects would definitely be felt across the globe, even for Americans who've never left America.
The reasons why an individual - or institution - would want to exchange money range to a myriad of different reasons, but the 3 main demographics include large corporations and institutions, speculators (investors) and tourists.
A tourist traveling from the United States to England, for example, will need the local currency (Great British Pounds), as common shops, taxi cabs, etc. will most likely not accept US Dollars. Typically the airport, hotels and other tourist destinations will have services to exchange just about any currency into the local tender.
A large portion the global foreign exchange market consists of corporations and institutions, who often exchange currency for non-investment purposes: the need to meet payroll in other countries, to pay for services from a foreign factory, mergers and acquisitions, etc.
Investors are attracted to the forex market because of its possibilities and advantages (which will be discussed in more detail in the 3rd email of this series). For example, investors enjoy the added liquidity and volume forex has to offer.
Unlike other financial markets, the Forex market operates 24 hours a day, 5.5 days a week (6:00 PM EST on Sunday until 4:00 PM EST on Friday). Through an electronic network of banks, corporations and individual traders exchange currencies, Forex trading begins every day in Sydney, moves to Tokyo, followed by Europe and finally the Americas - making the market available 24 hours during the week.
Unlike other financial markets, the Forex market operates 24 hours a day, 5.5 days a week (6:00 PM ET on Sunday until 4:00 PM ET on Friday). It is conducted through an electronic network of banks, corporations and individual traders exchanging currencies. For retail traders Forex is primarily used as a means for speculative investing and actual physical delivery of currencies is almost never intended. Forex trading begins every day in Sydney, moves to Tokyo, followed by Europe and finally the Americas.
A helpful way to learn more about forex is hands-on: try a risk-free, obligation-free demo account from IBFX!
Have a question? Feel free to contact our friendly customer support team, available 24 hours while the market is open.
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*Forex trading is one of the riskiest forms of investment available and may not be suitable for all traders.
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