WHAT IS FOREX?

Whenever you travel abroad, you may usually see a currency exchange booth at the airport, and then you need to exchange the money you have in your wallet (if you’re a dude) or buy (if you’re a lady) or man buy (if you’re a metrosexual) into the currency of the country which do you are visiting in.

You need to go up to the counter and notice a screen displaying different exchange rates for different currencies of the different countries. You may find “Indonesian rupiah.” and think to yourself, “WOW! My one dollar’s worth is12925 rupiah?! And I have ten dollars! I’m going to be a rich!!!” (This excitement is quickly killed when you stop by a shop in the airport afterwards to buy a banana to have a small breakfast, suddenly, you may find that half of your money is gone.)

By doing this, you participate in THE FOREX market! You’ve exchanged one currency for another. Or in FOREX trading terms, presuming you’re an American visiting Indonesia, you need to sell dollars and buy rupiah.

When you need to return home, you stop by the currency exchange booth to exchange the extra rupiah that you miraculously have left over and notice the exchange rates have changed. It’s the change in the exchange rate that allows you to make money in the foreign exchange market.

The foreign exchange market is usually known as “FOREX” or “FX,”. It is the largest financial market in the world. The foreign exchange market looks absolutely ignoramus with its $5 TRILLION a day trade volume, with around $22.4 billion a day volume of the New York Stock Exchange.  FOREX rocks our socks! Isn’t it?

Let’s take a moment to measure more sophisticatedly by putting this into perspective using monsters…

As New York Stock Exchange (NYSE) is the largest stock market in the world, it appears a volume of about $22.4 billion each day. If we used a monster to represent NYSE, it would look like the bellow…

You hear about the NYSE in the news every day… on CNBC… on Bloomberg…on 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, it’s loud and likes to make a lot of noise.

But if you actually compare it to the foreign exchange market, it would look like this…

Oooh, the NYSE looks so puny compared to FOREX! It doesn’t stand a chance!

Check out the graph of the average daily trading volumes as parallel for the FOREX market, New York Stock Exchange, Tokyo Stock Exchange and London Stock Exchange:

The currency market is over 200 times larger! How huge it is!

 Hold your horses, there’s a catch!

The entire global foreign exchange market comprises this huge $5 trillion numbers of dollars, BUT retail traders (that’s us) trade the spot market and that’s about $1.49 trillion. So you can see, the FOREX market is definitely huge, but not as huge as the media would like you to believe.

Do you think that you have already known what the FOREX market is all about? We’re just going to start! In the next sections we shall clarify WHAT exactly is traded in the FOREX market.