FOREX is the acronym of FOReign EXchange market and it is basically the currencies international market. It is the biggest financial market of the world, because every day traders of all over the planet meet (virtually) themselves to exchange almost 2.000 billions dollars.
You can operate on this market continuously or, at least, 5 days per week, 24 hours a day. In fact FOREX is open from 5pm EST on Sunday to 5pm EST on Friday. It starts every day in Sydney and moves all over the world, passing through Tokyo, London, Madrid and New York. Sometimes you can also operate during the weekend in Arab market.
Pragmatically speaking FOREX market consists in buying and selling foreign currencies in order to generate profits between the currency exchange rates differences.
It is also possible to operate on the main stock exchange’s indexes and with the most important raw materials such as gold, silver, oil, cotton, coffee and many others. Nowadays FOREX raw materials market is growing very quickly because the prices’ fluctuation of these goods is more consistent than that of the currencies. Accordingly the profits can be bigger.
Initially FOREX market was dominated by the banks, both central and commercial, but nowadays it includes big multinational companies, money managers, international foreign exchange dealers, brokers and single investors using brokers. This enlargement was due to diffusion of telecommunication systems and Internet in particular. In fact the FOREX is a market “Over The Counter” (O.T.C.), because it doesn’t take place in any physical location.
So every person who has a telephone line can operate on FOREX market.
We have to point out that FOREX is a highly speculative market, because almost 90% of operations are of this type. There are some financial instruments you have to know in order to operate on FOREX: the forward transaction, the futures, the spot and the swap. Let’s see briefly what they are.
- Forward transaction is the transaction of foreign exchange settled on an agreed date and at an agreed exchange rate. The lasting of this instrument can be one year at most. If a transaction exceeds the year it is called a super-forward transaction.
- Futures is a contract to buy or sell a given amount of a specific currency at a set price in a predetermined date in the future. In the FOREX all futures have a precise termination date which determines when the delivery of the currency has to occur.
- Spot consists in buying a hypothetic currency A with a different currency B in order to obtain a prompt delivery. In fact the lasting of this instrument usually is two days, calculated from the date of trade execution.
- Swap is composed of two transactions with the same amounts but different values dates and in diverse ways. In a foreign exchange swap we can always find two value dates and two agreed exchange rate. A very common swap consists in combining a spot transaction with a forward transaction. For example an investor, at the time when he sells a hypothetical currency A and buys currency B, buys the forward currency A and sells the forward currency B in opposite directions.
Starting from this essential knowledge you can pass examining the basis of the FOREX. Operating on this market can be very satisfying and the risk is only one: lose the initial capital. So think carefully about the amount you want to invest but bear in mind that, with patience and composure, you can earn lot of money.