What is Forex:

What exactly is forex? The concept of forex has been a bugging question in the minds of beginners in the forex trading business. Forex is an acronym of foreign exchange. That is,

For = Foreign

Ex = Exchange.

That is how the word was derived, and today everyone knows it as foreign exchange or forex. In a broader meaning, forex is the trading of one country's currency over another. The reality is that everyone dabbles into forex at one point or the other. It may not be digitally as to involve in trading using electronic means but physically, yes. For instance, when embarking on a holiday from one country to another, you are involved in a forex transaction. If you are planning to go to Kenya for the summer holiday, you will need to spend the Kenya shillings in that country. You do not need to spend dollars over there. Although, you can spend US dollars while in the country; however, you stand to be shortchanged because you will not get the best transaction value. To get the best value for the dollar while in Kenya, you must get the local currency- shillings. So, to spend shillings, you need to exchange your dollar for shillings for you to buy or pay for goods and services rendered to you in Kenya. When that happens, what you have just done is a form of foreign exchange, forex for short. You have exchanged your local currency for the currency of the country you want to travel to for a holiday.  

Also Read: Participants in the Forex Market

Another scenario involving forex trading is in the purchase of goods from another country. For example, if you are based in Japan and want to pay for products and services rendered to you in the United States of America or another country, you will need to exchange the yen for the dollar in order to complete the transaction efficiently and effectively. The reason for that is that since it requires foreign transactions, your local currency, the yen, may not be acceptable to your business associate across the other side of the aisle. For the business to be consummated, therefore, you will require a currency acceptable by both parties and that the exchange rate is determined mostly by the forces of demand and supply. That is where the dollar comes in. It is a well-known fact that the dollar is generally accepted as the currency of choice when it comes to cross-border businesses that involve the exchange of money. As a result, you have invariably engaged in forex, whether knowingly or unknowingly, as you pay for goods and services rendered to you from your country to your associate in another country.

The forest is unarguably the most liquid currency trading market across the world, with over $6.5 trillion exchanges daily and growing. The forex market by default, therefore, is the most traded market in the world today. More than 20 times higher than combined equities/stocks volume around the world. The exciting part of this is that the activities of the forex market transactions are primarily done over-the-counter. That means it can be conducted over the internet and other electronic platforms like the telephone between banks, and between banks and corporations. 

The Forex Market:

The forex market can be likened to a regular market where goods and services exchange hands. However, in the forex market, currencies are exchanged over the counter, and the market is primarily decentralized.

Over-the-counter implies there are no structures like the operations of the stock exchange, which has the responsibility of providing liquidity and which members with the dealing desk are authorized to carry out exchanges. The forex market operates strictly between different parties, and there is no direct supervision. For example, the forex trader decides whether to enter or exit any trades without consulting anyone, not even the broker who provides the trading platform. There are no supervisors to direct him on what direction to go in his trading activities. The forex trading market is in direct contrast to other types of markets, like the stock exchange market.

Decentralized also means that the plan0ning and deci0sion-making proc0esses are not cen0trally controlled by any phys0ically loca0ted stru0ctures. These acti0vities in the forex market are dele0gated and mai0nly distr0ibuted away from the cen0trally orga0nized gro0up.  

Players in the Forex Market:

Those that trade in the forex market include the following:

Central Banks

Commercials Banks

Investment Managers and Hedge Funds

Corporations

Retail Traders.

For further studies on Forex, Trading, and Investment, kindly get the book- Forex Trading: The Ultimate Guide from Amazon store