What is the Foreign Exchange Market?
The Foreign Exchange Market (Forex or FX) is a supply and demand mechanism facilitated by a group of banks which provide buying and selling prices to participants. The trading happens virtually as the banks are computer-linked. The advancement of technology has replaced the traditional way of trading that is done via phone, telex or brokers who utilize platforms and electronic broking systems. The forex market is particularly attractive to speculators for its high liquidity, 24-hour trading and price fluctuation.
The Bank for International Settlements (BIS) released its triennial FX survey indicating that the daily FX trading volume had reached $5.3 trillion as of 2013. The trading volume keeps growing every year.
A stock is a claim against the firm which issues it. The firm then uses the funds that it raises from issuing stocks for business expansion. A stock market is a place where stocks are traded. There are several major stock exchanges around the world although the advancement of technology has moved the direction of trading increasingly to electronic. The continuing sophistication has led to not just stocks, but also bonds, mutual funds, limited partnerships and other securities being traded on the stock market.
The major differences between the FX market and stock market are items being traded and operating hours. The forex market is limited to trading currencies while the stock market trades many kinds of financial products. The forex market operates 24 hours a day and 5 days a week while the stock market operates during normal business hours.
Most people think of "the market" as stocks - individual companies, working for individual goals, with no rhyme or reason behind fluctuating prices.
Insiders control the market. Unfortunately this is not common knowledge, but it should be a known fact.
Unlike stocks, currencies have no revenue to beat by analysts' expectations.
They move when that country's government thinks their currency is too high or too low. If it is too high, or low, that country cannot conduct proper business internally, or with other countries. Thus, currencies tend to stay in a certain range.
Foreign exchange is a different type of market - the fluctuations are predictable and the rules and patterns are simple.
Open 24 hours a day, 5 days week - there is always time to put in your trades, even on a Sunday night.