What is Forex ?

Unknown to the financial market? Allow me educate you my guy.

Forex, it's also known as the foreign exchange market, is a vast global financial platform where individuals can trade currencies.

You get what I'm saying AHLIEEEE, so like, if you anticipate that one currency will outperform another and your prediction is correct, you stand to make a profit.

In the days before a global pandemic disrupted travel, people used to board airplanes and venture internationally.

During your past travels to foreign countries, you likely encountered currency exchange booths at airports, where you converted your local currency into the currency of the destination country.

Foreign Exchange Upon approaching the counter, you noticed a digital display showing diverse exchange rates for various currencies. An exchange rate reflects the relative value of two currencies from different countries. Imagine finding the exchange rate for the Japanese yen and thinking, "Wow! My one dollar is worth 100 yen?! And I have ten dollars! I'll be wealthy!"

By engaging in this currency exchange, you effectively participated in the forex market!

You swapped one currency for another. Or, in forex trading terms, assuming you were an American visitor in Japan, you sold dollars and bought yen.

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Before returning home, you visited the currency exchange booth again to convert any remaining yen (since Tokyo is expensive) and noticed that the exchange rates had changed. It is these fluctuations in exchange rates that provide the opportunity to earn profits in the foreign exchange market.

What is forex?

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The foreign exchange market, commonly known as "forex" or "FX," represents the world's largest financial arena. The FX market is a vast, decentralized platform where global currencies are exchanged. Exchange rates fluctuate rapidly, making the market perpetually dynamic. While a fraction of currency transactions occurs in the "real economy" involving international trade and tourism (like the airport example), the bulk of global foreign exchange transactions are conducted for speculative purposes.

Currency traders, often referred to as currency speculators, purchase currencies with the expectation of selling them at higher prices in the future.

When compared to the "modest" daily trading volume of $200 billion on the New York Stock Exchange (NYSE), the foreign exchange market appears absolutely colossal with its daily trade volume of $6.6 TRILLION. Yes, trillion with a "T." Let's take a moment to illustrate this using imaginative creatures... The New York Stock Exchange (NYSE), the world's largest stock market, with a daily trading volume of approximately $200 billion, could be represented by this creature: Stock Market Monster Impressive, imposing, and perhaps even alluring. You hear about the NYSE every day in the news, on CNBC, Bloomberg, BBC, and even at your local gym. "The NYSE is up today, blah, blah." When people discuss the "market," they typically refer to the stock market. Thus, the NYSE appears substantial, exuberant, and inclined to make a lot of noise. However, when compared to the forex market, the NYSE appears significantly smaller: Forex vs. Stock Market Oh, the NYSE looks meager in comparison to the forex market! It doesn't stand a chance! One might wonder if the "S" in NYSE stands for "Stock" or "Scrawny"? 🤣 The cryptocurrency market is even more diminutive. Now, observe the graph depicting the average daily trading volume for the forex market, NYSE, Tokyo Stock Exchange, and London Stock Exchange:

The currency market is over 200 times LARGER! It's immense! Yet, there's a catch!

The substantial $6.6 trillion figure covers the entire global foreign exchange market. However, the "spot" market, which is most relevant to forex traders, accounts for a smaller $2 trillion per day. Moreover, if we consider the daily trading volume from retail traders (that's us), it's even smaller. Determining the precise size of the retail segment of the FX market is challenging, but it's estimated to represent around 3-5% of the overall daily FX trading volumes, approximately $200-300 billion (possibly less). Thus, the forex market is indeed immense, but it's not as gargantuan as some might lead you to believe. Don't be swayed by the "forex is a $6.6 trillion market" hype! While the staggering number sounds impressive, it can be somewhat misleading. We prefer to be truthful and straightforward. Aside from its vastness, the forex market rarely closes! It operates virtually around the clock.

The forex market is open 24 hours a day and 5 days a week, with the weekend as its only break. (What a group of laid-back individuals!) Unlike the stock or bond markets, the forex market does NOT close at the end of each business day. Instead, trading merely shifts to different financial centers across the globe.

Forex is a Global Market

The day commences when traders awaken in Auckland/Wellington, then proceeds to Sydney, Singapore, Hong Kong, Tokyo, Frankfurt, London, and finally, New York, before the cycle starts anew in New Zealand!

To keep you informed about daily developments in the forex market, we offer an FX Market Snapshot tool. This visual guide summarizes current market activity, enabling traders to quickly identify major currencies' strength or volatility, as well as the currency pairs that have gained or lost the most.

In the subsequent section, we'll reveal exactly what is traded in the forex market.

~Sensei FX

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