Forex
We reserve the biggest market for last.
As noted at the start of this chapter, the daily trading volume in the forex market dwarfs all others. Forex is the market for the various currencies of the world. It is a market which, at its core, is rooted in global trade. Goods and services are exchanged 24 hours a day all over the world. Those transactions done across national borders require payments in non-domestic currencies.
For example, a Canadian company purchases widgets from a Mexican company. To do the transaction, one of two things is going to happen. The Canadian firm may, depending on the contract terms, make payment in Mexican Pesos. That would require a conversion of Canadian Dollars in to Pesos to make payment.
Alternately, the payment could be made in Dollars, in which case the Mexican company would then exchange the Dollars for Pesos on their end. Either way, there is going to be some transaction which takes Dollars and swaps them for Pesos.
That is where the forex market comes in.
Transactions like this take place all the time. The market maintains a rate of exchange between the Canadian Dollar and the Mexican Peso (and between and amongst all other world currencies) to facilitate that activity. When you consider the amount of global trade which takes place, you can see why the forex market is the biggest in the world, dwarfing all others. Literally trillions of dollars worth of forex transactions take place each and every day.
Because many traders, especially those relatively new to trading, are unfamiliar with the forex market, we will take some additional time to expand on forex trading. If you are already familiar with the forex market, feel free to skip to the end of the chapter.
Posted: under Chapter 3.
Related articles
- The Right Market (July 31st, 2007)
- Comparing Markets (July 31st, 2007)
- Advantages of Forex (July 31st, 2007)
- Disadvantages of Forex (July 31st, 2007)
- How is the Forex Market Different? (July 31st, 2007)