What is forex? Quite simply, its the global market that allows the exchange of one currency for another.
If youve ever traveled to another country, you usually had to find a currency exchange booth at the airport, and then exchange the money you have in your wallet into the currency of the country you are visiting.
You go up to the counter and notice a screen displaying different exchange rates for different currencies.
You find Japanese yen and think to yourself, WOW! My one dollar is worth 100 yen?! And I have ten dollars! Im going to be rich!!!
When you do this, youve essentially participated in the forex market! Youve exchanged one currency for another.
Or in forex trading terms, assuming youre an American visiting Japan, youve sold dollars and bought yen.
Before you fly back home, you stop by the currency exchange booth to exchange the yen that you miraculously have left over (Tokyo is expensive!) and notice the exchange rates have changed.
Its these changes in the exchanges rates that allow you to make money in the foreign exchange market.
Theforeign exchange market, which is usually known as forex or FX, is the largest financial market in the world.
Compared to the measly $22.4 billion per day volume of the New York Stock Exchange (NYSE), the foreign exchange market looks absolutely ginormous with its$5 TRILLIONa day trade volume.
Lets take a moment to put this into perspective using monsters
The largest stock market in the world, theNew York Stock Exchange (NYSE), trades a volume of about $22.4 billion each day. If we used a monster to represent the NYSE, it would look like this
Looks intimidating. Some may even find it sexy.
You hear about the NYSE in the news every day on CNBC on Bloombergon BBC heck, you even probably hear about it at your local gym. The NYSE is up today, blah, blah.
When people talk about the market, they usually mean the stock market. So the NYSE sounds big, its loud and likes to make a lot of noise.
But if you actually compare it to theforex market, it would look like this
Oooh, the NYSE looks so puny compared to the forex market! It doesnt stand a chance!
Check out the graph of the average daily trading volume for the forex market, New York Stock Exchange, Tokyo Stock Exchange, and London Stock Exchange:
The currency market is over 200 times BIGGER! It is HUGE! But hold your horses, theres a catch!
That huge $5 trillion number covers the entire global foreign exchange market, BUTdaily trading volume from retail traders (thats us) make up between 5-6% of overall volume, or between $300-400 billion.
So you see, the forex market is definitely huge, but not as huge as the others would like you to believe. We dont like to exaggerate. We just keepin it real.
Aside from its size, the market also rarely closes!
The forex market is open24 hours a dayand5 days a week, only closing down during the weekend. (What a bunch of slackers!)
So unlike the stock or bond markets, the forex market does NOT close at the end of each business day.
Instead, trading justshiftsto different financial centers around the world.
The day starts when traders wake up in Sydney then moves to Tokyo, London, Frankfurt and finally, New York, before trading starts all over again in Sydney!
In the next section, well reveal WHAT exactly is traded in the forex market.
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Trading Scenario: Margin Call Level at 100% and No Separate Stop Out Level
Trading Scenario: Margin Call Level at 100% and Stop Out Level at 50%
Trading Scenario: What Happens If You Trade With Just $100?
Warning: Different Forex Brokers Have Different Margin Call and Stop Out Levels
You may delay, but time will not.Benjamin Franklin
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