In general, the Forex market is where banks, companies, administrations, investors and traders exchange and speculate on currencies. It is called the FOREX market as well as the “FX market.” It is the world’s biggest and most liquid market with a daily average turnover of $3, 98 trillion. The acronym FOREX stands for the foreign currency market and the foreign exchange market.
The Forex market is open 24 hours a day and 5 days a week in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney. Forex is an item quoted by all the major banks, and the exact same price will not be available to all banks. Now, all these feeds from the different banks are taken by the broker platforms and the quotes we see from our broker are an approximate average of them. It is the broker who transacts the trade effectively and takes the other side of it.
They make the market for you. When you buy a currency pair, the dealer sells it to you, not an “other trader.”
Now let us cast our eyes on Forex market history as it is important to have some basic background knowledge so that you know a little bit about why it exists and how it got here. So here is the Forex market history in a nutshell:
In 1876, something called the standard for the gold exchange was enforced. It was essentially said that solid gold had to support all paper currencies; the idea here was to stabilize world currencies by pegging them to the price of gold. In theory, it was a good idea, but in reality, it created boom-bust patterns that ultimately led to the gold standard’s demise.
The gold standard fell around the beginning of the Second World War, as major European countries did not have enough gold to support all the currency they were printing to pay for large military projects. Although the gold standard was ultimately dropped, the precious metal never lost its place as the ultimate form of monetary value.
The world then decided to have a fixed exchange rate that would make the US dollar the primary reserve currency and that it would be the only gold-backed currency known as the ‘Bretton Woods System’ and it happened in 1944.
In 1971 the US declared that the Bretton Woods system would no longer trade in US dollars that had foreign reserves.
This collapse of the Bretton Woods system ultimately caused floating foreign exchange rates to be mainly accepted globally in 1976. This was indeed the “birth” of the current foreign exchange market, but only around the mid-1990s, it was widely traded electronically.
If you still have confusion about Forex let me make it simple. It is essentially a decentralized market place where all the world’s major currencies are traded. It encompasses a wide variety of market players, from big money transactions among global financial institutions to ordinary people converting a few dollars. But all of you have the same goal you either want to buy a currency to sell more than you paid, or you want to sell a currency and buy it for less money.
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.