What is the foreign exchange market?
Foreign Exchange, or Forex, is the market for buying and selling foreign currencies. It allows investors from different countries to trade currencies with each other. This market has a daily trading volume of approximately 5 to 7 trillion dollars, making it the largest financial market in the world. It is nearly 300 times larger than the New York Stock Exchange (NYSE) and operates continuously 24 hours a day, using internet technology for online trading.
How does the foreign exchange market work?
Investors can buy or sell foreign currencies in the form of currency pairs, such as exchanging USD to EUR, EUR to JPY, or JPY to USD. In everyday life, this is similar to going to a currency exchange booth to convert money for traveling abroad. Currency exchange can be used both for speculating on price differences or for hedging against currency risk. Retail investors like us can participate in trading through online platforms and brokers.
History of the Foreign Exchange Market
The first Forex market originated in Amsterdam, Netherlands, about 500 years ago. However, the modern Forex market as we know it began in 1973, around 50 years ago. This was when the United States abandoned the Bretton Woods system. After that, currencies of each country started to float freely and could move independently. Since then, the Forex market has continuously developed, making it easier for everyone to access Forex trading and invest from anywhere in the world, as long as they have an internet connection.
