What is Forex?
In one line, Forex stands for Foreign Exchange. Apart from that Forex is also known as FX or currency trading. Let’s assume, you reside in India and you need to send money to your friend who resides in the USA or vice versa. So think what you can do? Can you send Indian Rupees (INR) directly to the USA or can your friend directly send you US Dollar (USD) for local use?
The answer is negative. Because even if you send INR to USA or USD to India they are not the local currency, so they are of no use until you covert those to local currencies. So that’s where Forex come into the picture. You should visit any bank or foreign exchange institution to get the money converted into local currency in exchange for the foreign currencies you have. That’s the basic idea of Forex. So the Forex can be called as means by which individuals, companies, and central banks convert one currency into another.
What is Forex Market (Foreign Exchange Market)?
Forex Market (Foreign Exchange Market) is a decentralized & over-the-counter (OTC) global market where currencies of all the countries are traded. It is the marketplace where individuals, companies, and central banks convert one currency into another. It is by far the most liquid market in the world. According to a recent estimate (YR2017), the size of the daily transaction in the Forex market is about 5.1 trillion dollars. It is quite big if we compare with the stock market. Such as the US Stock market is having a daily transaction value of around $226 billion and Indian Stock market is having a daily transaction value of around $35 billion.
Largest Contributors of Forex Market
In this huge market space the largest contributors are the banks, and more specifically the inter-banks. Top inter-banks accounts for around 51% of the total forex transaction. Then the 2nd place is held by the smaller banks and other financial institutions. All those banks and institutions jointly account for around 95% of the forex trades done in a day. And all these trades are done for the commercial purpose, as a result of international economic activities, such as payment of imported goods or loan to an overseas entity. Rest 5% of forex transaction is done by retail traders, who speculates for making the profit from the price movement of currency exchange values.
Below lists some of the major players in the forex market:
- Citi Bank
- JP Morgan
- Deutsche Bank