What to know Before you Start Forex

What is The Forex Market?
The Forex market is an acronym of The Foreign Exchange Market also called The Currency
Market.
What is traded in the Forex Market?
Money, as simple as that!
Currencies are bought and sold freely. This is the simultaneous buying of one currency
and the selling of another.
For instance, you have some inside information that leads you to think that the Euro will
go up; you want to buy the Euro pair (or EUR/USD). When you buy the EUR/USD pair
you are actually buying the EUR and selling the US dollar. When you buy the EUR it is
also said that you are “long” the EUR. When you sell the EUR it is also said that you are
“short” the EUR.
More than 80% of the volume is generated by what we call the seven major currencies:
• The US dollar (USD)
• The Euro (EUR)
• The British Pound (GBP)
• The Swiss Franc (CHF)
• The Canadian dollar (CAD)
• The Australian dollar (AUD)
• The Japanese Yen (JPY)
When did it at all start?
You could not say it all started after a sole event. A series of events happened and in
the end it resulted in the Forex market, as we know it today.
It all started when the Bretton Woods agreement was finally abandoned around 1971.
In this agreement, participating countries had their currency pegged to either the gold or
the US dollar. By 1973 the most powerful countries around the globe introduced a free
exchange rate regime where they let their currencies fluctuate driven by the market or
more precisely by the forces of supply and demand. It was then when the Forex market
was available to speculate, hedge as well as other reasons.
It was not until 1997 when the Forex market became available to individual investors
and traders through online trading capabilities and leverage (margin trading), offering
traders around the world great opportunities to profit from the Forex market.
The Forex market is now the most liquid financial market of the world, with a generated
volume of nearly 2 trillion US dollars (source: BIS) on a daily basis (more than all other
US financial markets combined).
Where do all trades take place?
Unlike other financial markets, there is no physical location where all trades take place
in the Forex market. All transactions are conducted via telecommunications (phone, online
platforms, etc.) between banks, large institutions, investors, trader, etc. This is
called an Over the Counter market or OTC.
Teaser - How do you think the volume of all transactions is measured in the Forex market?
Let’s put the Stock market in perspective, all transactions in the NYSE (New York
Stock Exchange) are placed through the same NYSE, so they are able to measure how
many short and long positions are placed at any point in time. But since there are no
physical locations where all transactions are placed in the forex market, how is the volume
measured? Or is it even possible to measure the volume of all transactions in the
Forex Market?