What is Forex?

Photo: Forex by market size in billions from 1988- 2007
The Foreign Exchange market, or forex, is a market for currencies. It takes place intra-bank and therefore has no actual trading center (as appose to NYSE, Nasdaq or other equity markets). What makes forex unique is that because of it's nature being OTC (over the counter), electronic, open 24 hours a day/6 days a week and having a simpler fundamentals structure when compared to other markets, forex is actually more truly competitive and liquid. Since forex trades are based on one currency with respect to a second, it is a truly global market and almost immune to market manipulations. It's fundamentals (Federal Reserve, or other Central Banks, cutting/raising rates, etc.) are quickly absorbed by the exchanges and there is no penalties for insider information. If you happen to know the head of Japan's central bank, and he told you he is going to cut interest rates by 50 basis points (.50%) you could make trades without fear of insider-trading prosecutions.
While some consider London to be the center of the forex market, this is unofficial. As the photo represents, forex is currently over a 3 trillion dollar market, making it the largest exchange traded regularly. Further, brokers to the foreign markets do not charge commissions for trades. Instead, they simply keep the spread in between the bid and ask price ( this is whether you are long or short a currency).
In future posts, we hope to explore the foreign exchange markets more in-depth and will surely be using forex models when we get to technical analysis.