The word FOREX is derived from the words Foriegn Exchange and is the largest financial market in the world.Unlike many markets the FX market is open 24 hours per day and has an estimated $1.2 Trillion in turnover every day.This termendous tunover is more than the combined turnover of the main wolds stock markets on any given market to trade.
Unlike many other securities(any financial instrument that can be traded) the FX maket does not have a fixed exchange.It is primarily traded through banks, brokers,dealers, financial institutions and privated individuals.
Trades are executed through phone and increasingly through the internet.It is only in the last few years that the smaller investor has been able to gain access to this market.Previously the large amounts of deposits required precluded the smaller investors.
With the advent of the intenet and growing competition it is now easily within the reach of most investors.
INTERBANK
you will ofen hear the term INTERBANK discussed in FX terminology.This originally,as the name implies was simply banks and larger institutions exchanging information about the current rate at which their clients or themselves were prepared to buy or sell a currency.
INTER meaning between and bank meaning deposit taking institutions.The market has moved on to such a degree now that the term interbank now means anybody who is prepared to buy or sell a currency.
It could be two individuals or your local trave agent offering to exchange Euros for US Dollars.You will however find that most of th brokers and banks use centralized feeds to insure deliability of quote.
The quotes for Bid (buy) and Offer (sell) will all be from reliable sources. These quotes are normally made up of the top 300 or so
large institution.This insures that if they palce an order wth is capable of fulfilling the order.
Now although we have spoken about orders beinh fulfilled, it is estimated that anywhere from 70%-90% of the market is speculative.In other words the person or institution that bought or sold the currency has no intention of actually taking delivery of the currecy.instead they were solely speculating on the movement of that particular currency.
INTER meaning between and bank meaning deposit taking institutions.The market has moved on to such a degree now that the term interbank now means anybody who is prepared to buy or sell a currency.
It could be two individuals or your local trave agent offering to exchange Euros for US Dollars.You will however find that most of th brokers and banks use centralized feeds to insure deliability of quote.
The quotes for Bid (buy) and Offer (sell) will all be from reliable sources. These quotes are normally made up of the top 300 or so
large institution.This insures that if they palce an order wth is capable of fulfilling the order.
Now although we have spoken about orders beinh fulfilled, it is estimated that anywhere from 70%-90% of the market is speculative.In other words the person or institution that bought or sold the currency has no intention of actually taking delivery of the currecy.instead they were solely speculating on the movement of that particular currency.
MARKET MECHANICS
so now we know that the fx market is the largest in the wold and that your broker or institution that you are trading with is collecting quotes from a centralized deed or individual quotes comprising of interbank rates.
So how are these quotes made up ? Well. as we previously mentioned currencies are traded in pairs and are each assigned asymbol.For the japanese Yen it is JPY, for the pounds Sterling it is GBP, forEuro it is EUR and for the Swiss Frank it is CHF.So, EUR/USD would be Euro-Dollar pair.GBP/USD would be pounds Sterling-Dollar pair and USD/CHF would be Dollar-Swiss Franc pair and so on.
You will always see the USD quoted first
So how are these quotes made up ? Well. as we previously mentioned currencies are traded in pairs and are each assigned asymbol.For the japanese Yen it is JPY, for the pounds Sterling it is GBP, forEuro it is EUR and for the Swiss Frank it is CHF.So, EUR/USD would be Euro-Dollar pair.GBP/USD would be pounds Sterling-Dollar pair and USD/CHF would be Dollar-Swiss Franc pair and so on.
You will always see the USD quoted first
EUR/USD Euro / US Dollar
GBP/USD Pounds Sterling / US Dollar
USD/JPY US Dollar / Japanese Yen
USD/CHF US Dollar / Swiss Franc
USD/CAD US Dollar / Canadian Dollar
AUD/USD Australian Dollar / US Dollar
NZD/USD New Zealand Dollar / US Dollar
When you see FX quotes you will actually see tow numbers.The first number is called the bid and the second number is called th offer (sometimes called the ASK)
If we use the EUR/USD as an example you might see 0.9950/09955 the first number 0.9950 is the bid price traders are prepared to buy Euros against the usd Dollar. the second number 0.9955 is the offer price and is the price trades are prepared to sell the Euro against the US Dollar.
These quotes are sometimes abbreviated to the last two digits of the currecy such as 50/55.
Each broker has its own convention and some will quote the full number and other will show only the last two.
GBP/USD Pounds Sterling / US Dollar
USD/JPY US Dollar / Japanese Yen
USD/CHF US Dollar / Swiss Franc
USD/CAD US Dollar / Canadian Dollar
AUD/USD Australian Dollar / US Dollar
NZD/USD New Zealand Dollar / US Dollar
When you see FX quotes you will actually see tow numbers.The first number is called the bid and the second number is called th offer (sometimes called the ASK)
If we use the EUR/USD as an example you might see 0.9950/09955 the first number 0.9950 is the bid price traders are prepared to buy Euros against the usd Dollar. the second number 0.9955 is the offer price and is the price trades are prepared to sell the Euro against the US Dollar.
These quotes are sometimes abbreviated to the last two digits of the currecy such as 50/55.
Each broker has its own convention and some will quote the full number and other will show only the last two.
