What is Forex ?

Forex is the foreign exchange marketplace where currencies from
different countries are valued and exchanged. Most people only know
about forex to the extent that they have changed money going from one
country to another. When they did so, they unwittingly played a role in the
world’s biggest marketplace. Forex trades almost $2 trillion per day, a
total that exceeds all of the world’s biggest – and better known – markets.

Since currencies are valued differently, there is a market in place to set
those values. Where a market exists speculation inevitably follows. In this
case, the market is hyper-active. Banks sending deposits around the
world, corporations hedging their exposure to currency risk in different
countries, government banks forwarding national economic goals through
monetary policy, and massive investment funds playing the role of
speculator. Not long ago, that was the extent of the market. It was the
domain of the professional trader or banker.

The word “market” usually invokes the idea of a central market place like
the New York or London exchanges. This is not the case in forex. Instead,
forex functions through what is known as the “interbank” market.
Interbank is a fancy way of saying that banks trade with each other, absent
a central market place. This is one major reason why volume data is not
available for forex. It’s also the reason why retail investors and smaller
traders were left on the sideline for so long.

In the 90’s, a series of events unfolded that made forex available to retail
investors. Deregulation led many companies to form pools of liquidity
where retail investors could take advantage of the huge speculative
opportunity in forex. These dealers offered high leverage, low minimums,
and a new way to trade – 24/7.