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What is Forex?

The foreign exchange market, commonly known as Forex or FX, is the exchange of one currency for another currency at an agreed live market price on the over-the-counter (OTC) market. Forex is the world’s most traded investment market and the most liquid with an average daily turnover in excess of $5 trillion compared to the NYSE’s $50 billion.


Forex has more superior liquidity compared to the stock market, and Forex trading is done over-the-counter. This means the trade is executed instantly without any delay. In the case of traditional stock market trading, you need to wait for the order to get executed by a broker in between the buy or sell.


Until recently, Forex trading in the currency market has been the domain of large financial institutions, corporations, central banks, hedge funds and extremely wealthy individuals. The emergence of the internet has changed all of this, and now, it is possible for average investors to buy and sell currencies easily at the click of a button through online brokerage accounts.


Daily currency fluctuations are usually very small and most currency pairs move less than one cent/pence per day, representing less than a 1% change in the value of the currency. This makes foreign exchange one of the least volatile financial markets around offering extreme liquidity, giving many traders the opportunity for multiple positions to be opened and closed within minutes.


Currency prices are based on objective considerations of supply and demand. They cannot be manipulated easily because the size of the market does not allow even the largest players, such as central banks, to move prices at will.


One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world rather than on one centralised exchange.


The market is open 24 hours a day, 5 and a half days a week. Currencies are traded worldwide in the major financial centres of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney - across almost every time zone. This means that when the trading day in the U.S. ends, the Forex market begins anew in Tokyo and Hong Kong.

               What is the spot market?

The spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of several things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally) and the perception of the future performance of one currency against another.

When a deal is finalised, it is called as a ‘spot deal’. It is a bilateral transaction when one party delivers an agreed-upon currency amount to the counterparty, who will receive a specified amount of another currency at the agreed-upon exchange rate value.


The spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of several things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally) and the perception of the future performance of one currency against another.


When a deal is finalised, it is called as a ‘spot deal’. It is a bilateral transaction when one party delivers an agreed-upon currency amount to the counter-party, who will receive a specified amount of another currency at the agreed-upon exchange rate value.

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What are price quotes?

When a currency is quoted, it is done in relation to another currency, so that the value of one is reflected in the value of another. Therefore, if you are trying to determine the exchange rate between the U.S. dollar (USD) and the Japanese yen (JPY), the Forex quote would be USD/JPY = 119.50.


The currency on the left (USD) is the base currency, while the one on the right (JPY) is the counter currency. The base currency (USD) is always equal to one unit ($1) and the quoted currency (JPY) is what $1 is equivalent to in the other currency. The quote means that $1 = ¥119.50. In other words, $1 can buy ¥119.50.


In the Forex spot market, most currencies are traded against the U.S. dollar, which is frequently the base currency in the pair. In these cases, it is called a direct quote. This would apply to the above USD/JPY currency pair, which indicates that $1 is equal to ¥119.50.

Bid and Ask

As with most trading in the financial markets, when you are trading a currency pair, there is a bid price (buy) and an ask price (sell). Again, these are in relation to the base currency. When buying a currency pair (going long), the ask price refers to the amount of quoted currency that has to be paid in order to buy one unit of the base currency, or how much the market will sell one unit of the base currency for in relation to the quoted currency.


The bid price is used when selling a currency pair (going short) and reflects how much of the quoted currency will be obtained when selling one unit of the base currency, or how much the market will pay for the quoted currency in relation to the base currency.

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Should you be interested in learning more about the GFXM investment fund and how it can benefit your investment portfolio, 

contact us now on 0800 072 8667. We will be happy to provide you with any information you may require, discuss the investment options with you or arrange a face to face meeting.

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