Forex means the process of exchanging one currency for another based on the market’s exchange rate with these currencies being sold and purchased in pairs. For instance, for you to purchase Japanese Yen you have to sell US dollars and as a result Forex currencies have to be quoted in pairs for example GBP/USD, EUR/USD, or EUR/JPY. Some currencies have more demand than others meaning that that those with more demand trade more frequently and are referred to as major currencies. Some of the major currencies include the Swiss Franc, Japanese Yen, British Pound, Australian Dollar, and US Dollar, whereas the less frequently traded currencies are called minor currencies, these are the currencies used in small developing countries, others refer to them as exotic currencies. Currencies commonly used as investment vehicles are confined into four pairs of currencies denoted by USD/CHF, GBP/USD, USD/JPY, and EUR/USD. Where Forex Trading Takes Place In the past, Forex trading was exclusively conducted by hedge funds, central banks, multinational currency companies, and major banks however; this has changed in recent times due the latest surge in internet development and market innovations allowing even the small time trader the opportunity to participate in the Forex market. Some - 7 - Forex broker companies offer a variety of accounts to their clients enabling retail traders the chance to trade in relatively smaller lots. Even though Forex markets have undergone some remarkable improvement, it still remains largely unregulated; and Forex trading rules have not yet been clearly defined especially when trades go beyond international borders. Furthermore, traders with a sizeable amount of risk capital as is the case with hedge funds and banks which have the ability to influence the Forex market due to their huge financial leverage; therefore, those with little or no experience in Forex trade will be venturing into risky unchartered territories.
