The term FOREX stands for "Foreign Exchange", ie, foreign currency exchange. This market allows banks and other institutions to buy or sell currencies easily. In this way, facilitates international trade and investment.
For example, a European company pays in dollars to an American exporting company.
This is a relatively young, born in the 70s, despite being the largest market by volume and liquidity. To give you an idea of daily operations in 2007 were 3.2 trillion.
The characteristics of this market is that it is an organized, hence the foreign exchange clearing house does not exist and is a possible market manipulation, due to the large number of participants who are in this market. Therefore, a single financial institution can not influence the tendency of any currency.
Perhaps until now has been a very unknown market, mainly for banks, businesses, central banks and speculators, however, increasingly are being incorporated new investors. As a curiosity, about 90% of total daily transactions in foreign exchange comes from speculators.
Advantages of investing in Forex:
- Market 24 hours: unlike the major stock exchanges. Thus, if we invest in stock typically Spanish, we know that we can operate from 9 to 17'30h. While Forex investors if we can operate from Sunday to Friday from 0 to 24h. Therefore, if to 18h receive the U.S. President saying that a terrorist attack in New York, Forex investors if we can decide right then what to do with our investments, while Telefonica shares if we will have to meet us at 9am the next day.
- Ability to obtain high returns in short periods of time.
- You do not diversify: only be necessary to decide a currency and keep an eye on the news about a country and its macroeconomic policy, unlike when Santander bought Ibex35 who look forward to a great number of factors (sector, geographic area , country, management, quarterly reports, and information that sometimes only know a few).
Another issue to address is what the product. The currencies are traded among themselves, ie each pair of currencies is an individual product.
For example: EURUSD, is the price of the euro expressed in dollars.
The most common are pairs: EURUSD, USDJPY, USDCHF and GBPUSD (EUR = Euro, USD = U.S. dollar; CHF = Swiss franc and yen JPY = GBP = pound sterling).
Moments with notable fluctuations in foreign exchange: perhaps most important, is the before and after a decision of interest rates by major central banks, but also affect macroeconomic data to be published in each country and and political changes.