Forex, or FX is the international spot market for foreign currency. It is the largest market in the world with more than $2.9 trillion traded every day. The market appeals to individuals because of its enormous liquidity, high leverage*, and the fact that it is open 24 hours a day, 6 days a week. Traders have the potential to trade, even from a small investment.

A BRIEF HISTORY

In 1944, the Bretton Woods Agreement was initiated in an effort to keep cash from draining out of war-ravaged Europe. Currency values were pegged to the U.S. Dollar, which was then pegged to the price of gold. In 1971, the modern era of foreign exchange first emerged with the collapse of the Bretton Woods Agreement. The U.S. Dollar was no longer convertible into gold, signaling an increase in currency market volatility and trading opportunities.

In 1973, the collapse of the subsequent Smithsonian and European Joint Float agreements signaled the real beginning of the free-floating currency exchange system that drives the markets today. As early as in the 1980’s, computer technology extended the reach of the exchange marketplace. The values of the major world currencies became independent of each other, with intervention available to states only through the central banking system.

TODAY IN FOREX

Whether or not you are aware of it, you already play a role in the currency market. The simple fact that you have money in your pocket makes you an investor in a nation's currency. By holding US Dollars, for example, you have elected not to hold the currencies of other nations. When a currency is traded, the transaction is carried out on the Foreign Exchange market.

Unlike other financial markets that operate at a centralized location (i.e., the stock exchange), the worldwide Forex market does not have a central location. It is a global electronic network of banks, financial institutions and individual Forex traders, all involved in the buying and selling of national currencies. A major feature of the Forex market is that it operates 24 hours a day, 6 days a week, corresponding to the opening and closing of financial centers in countries all across the world. At any time, in any location, there are buyers and sellers, making the Forex market the most liquid market in the world.

Traditionally, access to the Forex market has been available only to banks and other large financial institutions. However, with advances in technology over the years along with the industry's high leverage options*, the Forex market is now available to everybody, from banks to money managers to individual Forex traders.

* Without proper risk management, this high degree of leverage can lead to large losses as well as gains.