What is the forex market

The forex market is an investor dream and nightmare. If you have ever wondered about foreign currency trading, then understand what the forex market is, and how it operates is a must.

The forex market is the foreign exchange market, it is also referred to as the FX market. It is the most traded financial market in the world, and one of the most elusive and confusing. It is the market through which global commercial and investment flows. If you are serious about investing, the forex market should not be ignored.

The forex market volume contains both speculative and non-speculative sources. The primary non-speculative source of forex market volume is global financial and investment flows.Any transaction that crosses borders will go through the forex market at some point. So this might be a British pension fund investing in US Treasury bonds, or a Swiss company buying components made in Japan. If it crosses borders, it goes through the forex market.

It is a trader's market. This is important to know, and it is different from most other markets because it is open around the clock six days a week, allowing traders to act on news and events as they happen. Because it is a global market, the only real holiday that it is closed for is New Year's Day, and that really depends on which day of the week it falls. This means that it can be used any time, anywhere, for making trades. This is great for investors who work odd hours, or want to fit trading into a crazy schedule, as you are not waiting for exchanges to open the way you do with stocks on the New York Stock Exchange, etc.

It is also important to note that the size of the forex market exceeds any other market. The market is huge. This means that the volume of trades is a bit different as well. A half a billion dollar trade can be executed without even causing a blip on the radar, which is not the case in any other market. In some cases, such a trade will not even move prices noticeably. Do this in another market and you will change prices drastically. Why does this matter? Because the size of the market impacts the way you trade in it. In fact, the average daily currency trading volumes are over two trillion dollars a day. It is about ten to fifteen times the size of the daily trading volume in all of the world's stock markets combined. See if you can wrap your brain around that, it is a lot of zeros.

Understanding what kinds of transactions are taking place there that are not speculative, and how large it is, can help you better understand how the speculative trading works, as it makes up upwards of 90% of the forex market action.