What's Forex...?

FOREX (FOREIGN EXCHANGE)

The Foreign Exchange, also referred to as the "FOREX" or "Forex" or “FX” or "Spot FX" market is the largest financial market in the world, with a volume over $1.95 trillion a day. If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you see how giant the Foreign Exchange really is. It's actually more than three times the total amount of the stocks and futures markets combined!

What is traded on the Foreign Exchange? The answer is money. Forex trading is the simultaneous buying of one currency and selling of another. Currencies are traded through a broker or dealer and are traded in pairs; for example the Euro dollar and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).

This kind of trading is often very confusing to people because they are not buying anything physical. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the country's economy.

In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy compared to the other countries' economies.

Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.

Until the late 1990’s, only the “big guys” could play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucks to start. Forex was originally intended to be used by bankers and large institutions and not by us “little guys”. However, because of the rise of the Internet, online Forex trading firms are now able to offer trading accounts to 'retail' traders like us.

All you need to get started is a computer, a high-speed Internet connection, and the information contained within this site. BabyPips.com was created to introduce beginning traders to all the essential aspects of foreign exchange in a fun and easy-to-understand manner.

What is a Spot Market?

A spot market is any market that deals in the current price of a financial instrument.

Which Currencies Are Traded?

Any currency backed by an existing nation can be traded at the larger brokers. The most popular currencies along with their symbols are show below:

Symbol	Country	Currency
USD	United States	Dollar
EUR	Euro members	Euro
JPY	Japan	Yen
GBP	Great Britain	Pound
CHF	Switzerland	Franc
CAD	Canada	Dollar
AUD	Australia	Dollar

Forex currency symbols are always three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency.

When Can Currencies Be Traded?

The spot FX market is unique to any other market in the world. It’s like a Super Wal-Mart where the market is open 24-hours a day. Somewhere around the world, a financial center is open for business, and banks and other institutions exchange currencies, every hour of the day and night with generally only minor gaps on the weekend.

The foreign exchange markets follows the sun around the world, so you can trade late at night if you’re a vampire or in the morning if you’re an early bird. Keep in the mind though, the early bird doesn’t necessarily get the worm in this market. You might get the worm but a bigger nastier falcon can sneak up and eat you too.

Time Zone	New York	GMT
Tokyo Open	7:00 pm	0:00
Tokyo Close	4:00 am	9:00
London Open	3:00 am	8:00
London Close	12:00 pm	17:00
New York Open	8:00 am	13:00
New York Close	5:00 pm	22:00

The Forex market (OTC)

The Forex OTC market is by far the biggest and most popular financial market in the world, traded globally by a large number of individuals and organizations. In the OTC market, participants determine who they want to trade with depending on trading conditions, attractiveness of prices and reputation of the trading counterparty.

The chart below shows global foreign exchange activity. The dollar is the most traded currency, being on one side of 89% of all transactions. The euro’s share is second at 37%, while that of the yen is at 20%.