The foreign exchange market is a currency market (also a virtual market), where Investment Banks, Institutions, Commercial Companies and Individual Investors go to Buy, Sell and ultimately swap one currency for one another.
Each Country has it’s own respective currency, America uses the US Dollar (USD), Europe uses the Euro (EUR), Great Britain uses the Pound (GBP), etc. All of these currencies have a different value, in respect to each other.
A common example to elaborate on the Forex Market, is when an individual travels from one Country to another. So, if we are to assume that you were to travel from the United States to Canada, you would trade your US Dollars for Canadian Dollars. In trading your US dollars for Canadian Dollars, you participated on the global Forex Market.
Individuals in this massive global market
You see, we’re just individuals. We don’t have tons and tons of money like Banks, Institutional Investors, Hedge Fund Managers, or Mega-Corporations. In comparison to these over-sized professionals, we’re merely a drop in the ocean.
Mega-corporations rely on the Foreign Exchange Market to trade in their currencies that they earn all around the world. Walmart, one of the largest retail companies in the world, has stores in 44 countries around the globe, even though it is based in the United States.
When it earns money in France, the company isn’t paid in dollars. Walmart gets paid in Euros. The company has to trade its Euros in for Dollars to account for it’s Profits and Losses.
Naturally, Walmart participates in the Foreign Exchange Market to convert its Foreign currencies into its home currency.
You Don’t Have to Be Big to Trade Forex
But you don’t have to be a Fortune 500 company to trade on the foreign exchange market. In fact, many traders make money in Foreign Exchange in Buying and Selling currencies for a profit. The point needs to be made that:
- There are many reasons currencies are swapped for one another
- You don’t have to be a millionaire or billionaire to trade Forex
See below the average daily trading volume for the Forex Market, New York Stock Exchange, Tokyo Stock Exchange, and London Stock Exchange:
- Forex: 3980
- New York Stock Exchange: 74
- Tokyo Stock Exchange: 18
- London Stock Exchange: 7