If you've
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 (if
you're a dude) or purse (if you're a lady) or man purse (if you're a metrosexual)
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! I'm going
to be rich!!!" (This excitement is quickly killed when you stop by a shop
in the airport afterwards to buy a can of soda and, all of a sudden, half your
money is gone.)
When you
do this, you've essentially participated in the forex market! You've exchanged
one currency for another. Or in forex trading terms, assuming you're an
American visiting Japan, you've 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. It's these changes in the exchanges rates that
allow you to make money in the foreign exchange market.
The foreign 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 a day volume of the New York Stock
Exchange, the foreign exchange market looks absolutely ginormous with its $5 TRILLION a day trade volume. Forex rocks our socks!
Let's
take a moment to put this into perspective using monsters...
The
largest stock market in the world, the New York Stock Exchange (NYSE), trades a
volume of about $22.4 billion each day.
The
currency market is over 200 times BIGGER! It is HUGE!
That huge
$5 trillion number covers the entire global foreign exchange market, BUT retail
traders (that's us) trade the spot market and that's about $1.49 trillion. So
you see, the forex market is definitely huge, but not as huge as the media
would like you to believe.
Do you
feel like you already know what the forex market is all about? We're just
getting started! In the next section we'll reveal WHAT exactly is traded in the
forex market.
