Foreign Exchange trading involves the simultaneous buying of one currency and the selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen. Currency Pairs are traded against each other, meaning that the value of one currency is determined by its comparison to another currency.
The Foreign Exchange market, also referred to as the “Currency,” "Forex" or "FX" market, is the largest financial market in the world, with a daily average turnover of approximately US$3.5 trillion. The foreign exchange market exists wherever one currency is traded for another. It includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. Individual retail traders are a small fraction of this market and participate indirectly through brokers.
Unlike the stock markets, the Forex market does not operate via regulated exchanges or clearing houses. Participants of the Spot Forex market deal with each other via global communication networks to buy and sell currency pairs. As a result, unlike stock trading, there's no brokerage commission. You can long and short currency pairs any time. Forex is open 24 hours and is the most liquid financial market in the world.
There is no NYSE, LSE or DAX in forex markets. Trade takes place on the basis of interbank offered rates or on OTC counters and is done over phone or through emails.
Foreign exchange trade deals with selling and purchasing of currencies. One currency is bought or sold in exchange of another currency. Therefore, currencies are always traded in pairs on the basis of international exchange rates that keep changing every day. There are many forex trading brokers that offer brokerage services for facilitating such transactions.
More than 80% of all transactions involve the currency pairs of the greenback, Euro, Japanese Yen, British Pound, Swiss Franc, the Canadian and the Australian Dollar.
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