The
simple answer is money. Forex trading is the simultaneous buying of one
currency and the selling of another. Currencies are traded through a broker or
dealer, and are traded in pairs; for example the euro and the US dollar
(EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).
Because
you're not buying anything physical, this kind of trading can be confusing.
Think of buying a currency as buying a share in a particular country. When you
buy, say, Japanese Yen, you are in effect buying a share in the Japanese
economy, as the price of the currency is a direct reflection of what the market
thinks about the current and future health of the Japanese economy.
In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies.
Unlike
other financial markets like the New York Stock Exchange, the Forex spot market
has neither a physical location nor a central exchange. The Forex market is
considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact
that the entire market is run electronically, within a network of banks,
continuously over a 24-hour period.
Until
the late 1990's, only the "big guys" could play this game. The
initial requirement was that you could trade only if you had about ten to fifty
million bucks to start with! Forex was originally intended to be used by
bankers and large institutions - and not by us "little guys".
However, because of the rise of the Internet, online Forex trading firms are
now able to offer trading accounts to 'retail' traders like us.
All
you need to get started is a computer, a high-speed Internet connection, and
the information contained within this site.
BabyPips.com
was created to introduce novice or beginner traders to all the essential
aspects of foreign exchange, in a fun and easy-to-understand manner.
What is a Spot Market?
A spot
market is any market that deals in the current price of a
financial instrument.