What is Forex?

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If you have already travelled abroad, you have had to go to the exchange office at the airport and then exchange the money you had in your wallet (men) or wallet (ladies) in the currencies of your host country.

You arrive at the counter and notice a screen displaying different rates for different currencies. You find “Japanese Yen” and you think, “WAOW”, my one dollar bill is worth 100 Yen?! And I have ten dollars! I’m going to be rich!!!!! (This craze is quickly wiped out when you stop in front of an airport store to buy a can of soda when all of a sudden, half your money is gone.)

Just by doing this, you have already participated in the Forex market! You traded one currency for another. In terms of Forex trading, assuming you are an American visiting Japan, you have sold dollars to buy Yen.

Before returning home, you stop at the exchange office to change the Yen you have left in your pocket (Tokyo is expensive!) and notice that the exchange rates are no longer the same. It is these rate changes that allow you to make money in the international foreign exchange market.

The international foreign exchange market, better known as “Forex” or “FX”, is the largest financial market in the world. Compared to the NYSE’s daily volume of $22.4 billion, the international foreign exchange market seems staggering at $5.3 TRILLIONS per day in terms of volume. Forex makes the ground under our feet tremble!

Let us take the time to consider its gigantic proportions by means of representations in the form of “monsters”..

The world’s largest stock exchange, the New York Stock Exchange (NYSE), trades about $22.4 billion a day. If we used a monster to illustrate the NYSE, it would look like this…

monster

You hear about the NYSE on the news every day… on TF1… on BFM… on LCI… and probably even in your gym. “The New York Stock Exchange is up today, blah, blah, blah, blah, blah.” When people talk about the “market”, they often refer to the stock market. So the New York Stock Exchange (NYSE) gives an impression of grandeur and cacophony. But if we had to compare it to the Forex market, here’s what it would look like…

monster forex et bourse

Oh, the New York Stock Exchange looks very small next to the Forex market. She’s no match for you!

Look at this graph of the average daily trading volume on the Forex market, the New York Stock Exchange, the Tokyo Stock Exchange and the London Stock Exchange:

average daily trade volume

The foreign exchange market is more than 200 times bigger! It is IMMENSE! But stay calm, there’s a trick!

This huge figure of 5 trillion covers the world international exchange market, BUT we, the individual traders, trade the spot market, which represents about 1.49 trillion. As you can see, the Forex market is huge, but not as big as the media would have us believe…

Do you want to know what the Forex market is? We’re only at the beginning! In the next section, we will reveal exactly what the Forex market is all about.