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What are FOREX Markets?

2016-12-08T14:46:56+00:00

The term 'FOREX Markets' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

FOREX markets are the world wide foreign exchange markets. They are called FX markets as well. FOREX markets are different from all of the other major financial markets in that they are over the counter and decentralized. They exist for the purpose of trading currencies.

Unlike with other markets, the FOREX markets are also open twenty-four hours a day during the week and on Sunday, since the different financial centers around the globe serve as trading bases for a variety of buyers and sellers. This foreign exchange market is the place where supply and demand mostly decides the different currencies’ values for nations around the world.

The main point and reason for the FOREX markets are to help out investment and trade internationally through permitting businesses to easily change one currency to the other one that they require. In practice, individuals or businesses actually buy one amount of foreign currency through paying for it with a given amount of a different currency.

As an example, Canadian businesses may import British goods by paying for them in British Pounds, even though their income and base currency are Canadian dollars. The foreign exchange markets allow for investors to speculate on the rising and falling values of various currencies as well. It also makes the infamous carry trade possible, where investors are able to borrow currencies with low yields or interest rates and use them to purchase higher interest rate yielding currencies. Critics have said that the FOREX markets also hurt some countries’ competitiveness against other countries.

This market is extremely popular and unique for a variety of reasons. It possesses the greatest trading volume on earth, managing in the three to four trillion dollar range every single trading day. This gives it enormous liquidity. It is also geographically centered all over the world, from Wellington in New Zealand to London in Great Britain to New York in the United States. Traders love that the market runs fully twenty-four hours per day except for on the weekends, when it reopens Sunday afternoon.

Finally, an enormous degree of leverage, that can be as much as two hundred to one, allows for even people with small accounts to make potentially enormous gains. Because of all of these factors and its world wide trading base, the FOREX markets have been called the ones where perfect competition is most evident. This is the case even though central banks sometimes intervene directly in these markets to increase or decrease the value of their currency relative to a trading partners’ or trading competitors’ currency value.

The term 'FOREX Markets' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.