The Foreign Exchange market, is also known as "Forex", "Forex Trading" , "FX" OR "Spot FX". The Currency trading market is the largest financial market in the world, with a volume of over $4 trillion a day. and it is non comparable to the stock exchange market with only $25 billion a day volume.
Forex trading usually deal with 4 major pairs: EUR/USD , USD/JPY, GBP/USD and USD/CHF. These major pairs are considered as Forex market's "blue chips". we do not receive any dividends on the currencies. We only Buy and Sell the fx currency pairs. The Forex market is open 24 hours a day, which allows traders to open or close their positions at any point in time. The Forex market has narrow spreads on more liquid currency pairs and have almost no price gaps.
Currency or forex trading is not a market in the traditional sense because there is no central trading location. Most of the trading is conducted by telephone or through electronic trading networks.
The primary market for currencies is where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates. The true interbank market is only available to institutions that trade in large quantities and have a very high net worth.
In recent years, the OTC market that has developed over the years permits retail investors to participate in forex transactions. Last time, only traders with very huge capital or institutions or banks are able to trade forex. The Forex market has a higher leveraged trading compared to other financial instruments.
Forex transactions are quoted in pairs because you are buying one currency while selling another simultaneuosly. The first currency is the base currency and the second currency is the quote currency. For example, if EUR/USD has an ask price of 1.2000, you can buy one Euro for 1.2000 US dollars.
Some of the firms may charge a per trade commission, while some other firms only earn through the spread between the bid and ask prices they give their customers. In the earlier example, assume that the dealer can get a EUR/USD spread of 1.2000/02 from a bank. If the dealer widens the spread to 1.2000/08 for its clients, the dealer has marked up the spread by .0005 on each side.
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