What Is Forex?

Forex (contraction of the English foreign exchange) or foreign exchange market is a market currencies across the world. It is decentralized and accessible to all: when a tourist in Tokyo buys dollars with yen, it performs a transaction on the forex market – just as when a multinational converts million pounds sterling. This makes it the largest market in the world, rendered volatile by the large volume of transactions, it is permanently open, except on weekends.

Many clients seek only forex exchange foreign currency against theirs, such as requiring companies to pay wages somewhere other than where they sell. But a large part consists of currency dealers who speculate on movements in exchange rates – like those who are on the evolution of stock prices.

Exchange rates fluctuate due to macroeconomic developments and events and expectations that traders have, in addition to actual cash flows. This market attracts investors because its volatility provides many opportunities for profits (and losses, of course), while allowing the use of hedging instruments well known. Another of its advantages is that the forex broker allows the use of leverage for their investors by requiring only small margins.

On the forex market, currencies are traded against each other by “pairs”, which represent the relative value of a unit of currency, the “base” against another currency, the “cons”. They are usually written by juxtaposing the international codes three letters of currencies, starting with the basic example, EUR / USD refers to the ratio of the euro against the U.S. dollar.

Like all markets, there is a difference between purchase price and selling on forex, called gap between demand and supply. It is measured in “pips,” the smallest difference in price a given exchange rate can offer – and generally equal to 1 / 100 of a percent. For major currencies, the difference between the price at which a market will buy ( “Application”) to a client and one he will sell ( “Offer”) is often between one and three pips.

The market is divided into three access levels: at the top is the interbank market, including the largest banks and securities dealers, who generally perceive sharp differences. The smaller banks and large multinational companies come after, followed by pension funds and asset managers. The independent traders, which banned the march, participate indirectly through brokers or banks, and are part of a growing market through the facilities offered by the Internet.

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