Forex is a shorter version of the word foreign exchange. The Forex or foreign exchange market is the avenue that banks from all over the world use to sell and exchange foreign currencies among each other. Its main purpose is to allow for international lending and borrowing. You see the Forex Board all of the time on your local and national news medias. For example, in the United States it shows how much the US Dollar is compared say to the Euro or the Japanese Yen.
The Forex trading system was started during the 1970's. In the old days it was known as the exchange rate regime which meant that there was pretty much a universal value to all currency. Today, the Forex market exchange system is based on a floating system which allows for the individual countries to set the value of foreign currencies by their own liking.
The foreign exchange market is by far the largest financial market in the world. Before the current financial crisis, it was reported that over $3 Trillion dollars in US money was traded every day. In today's current economic market, Deustche Bank of Germany is the highest trading company in the Forex market with about 20 percent of the market action. The United States does about roughly 10 percent of forex business with those companies being CitiBank and JP Morgan.
The foreign exchange market is important because it gives some stability to the global market. If it wasn't for the Forex market, countries would not be able to borrow from each other like they do.
For more on investing in the Forex market, including information on Forex options, visit Teach Me Finances.
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