The foreign exchange market (Forex, FX, or currency market) is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends.The purpose of the foreign exchange market is to assist international trade and investment. The foreign exchange market allows businesses to convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars. Some experts, however, believe that the unchecked speculative movement of currencies by large financial institutions such as hedge funds impedes the markets from correcting global current account imbalances. This carry trade may also lead to loss of competitiveness in some countries.[In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency.
The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states.
Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial Conference. The delegates deliberated upon and signed the Bretton Woods Agreements during the first three weeks of July 1944.
Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement.
The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. This is why this system is also sometimes called a pseudo gold standard.
On August 15, 1971 the United States unilaterally terminated convertibility of the dollar to gold. This action created the situation whereby the United States dollar became the sole backing of currencies and a reserve currency for the member states. In the face of increasing financial strain, the system collapsed in 1971.
Foreign Exchange (FOREX) is the arena where a nation's currency is exchanged for that of another nation’s currency. The foreign exchange market is the largest financial market in the world, with the equivalent of over $1.9 trillion changing hands every day, more than three times the aggregate amount of the US Equity and Treasury markets combined. Unlike other financial markets, the Forex market has no physical location and no central exchange (off-exchange). It operates through a global network of banks, corporations and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another in all the major financial centers.
Traditionally, retail investors' only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. Today, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all use the FOREX market to pay for goods and services, transact in financial assets or to reduce the risk of currency movements by hedging their exposure in other markets.
Forex- The largest financial market in the world, Foreign Exchange market, Forex or FX market, all the terms are used to describe the business of trading of the world's various currencies, with more than $2 trillion changing hands every day. Being an international foreign exchange market, Forex is a market where money is sold and bought freely. FOREX was launched in the 1970s, to become the biggest liquid financial market today, dealing in more than hundred times the daily trading on the New York Stock Exchange.
FOREX is a perfect market to invest in, as it is free from any external control and free competition. Mostly, all Forex trading are tentative and unlike the stock market trading, the Forex market is not conducted by a central exchange, but on the “interbank” market, which is thought of as an OTC (over the counter) market. The trading takes place between the two dealers, either over the telephone or through Internet, all over the world. The major trading centers are the ones at Sydney, London, Frankfurt, Tokyo and New York, making Forex a 24-hour market.
Forex Trading requires the employing fundamental as well as technical analyses. These analysis help a trader to foresee and determine the development in the price trends of currencies, based on which, he attempts to predict market changes and make profits. Fundamental analysis can be said to use techniques to analyze the value of a state’s currency with the help of its economic indicators, quality markets and political events and associations. Political stability also influences the exchange rate at Forex. It’s not just that Forex Trading is intutive, rather its technical .While Technical analysis engages the study of patterns of price trends and movements, making it easier for the trader to predict the path of the future developments in the Forex market. The primary data for a technical analysis are values, be it the highest or the lowest values, the price of opening and closing in a definite period of time, and the amount of transactions taking place. Any factor, be it economic, political or psychological, having little or some influence on the value or the price, has already been measured by the market to be included in the price.