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Forex stands for the foreign exchange market. This is also referred to as the FX, Spot FX or Currency market. All of these names are just several ways of describing the very same market.

This market has been around since the 1970’s when currencies started to fluctuate when President Nixon took the U.S. off of the gold standard. Formerly, the U.S. currency was backed by gold and now it’s just backed by the “faith” in the government’s ability to honor and back the currency.

However, even though this market has been around for such a long time, it hasn’t been open to the retail public until the 1990’s and many market makers didn’t even get well established until 2000 or after.

Formerly, only the “big boys” could play around in this market. They usually had a minimum of $10 million to $50 million to throw around in this market. It was reserved basically for banks and big institutions.

However, with the advent of the internet, later on it was able to be opened up to the retail public as they were allowed to trade in smaller sizes that would be feasible for the “average Joe” to be able to handle.

Size of the Forex Market

The Spot Forex market is the largest financial market in the world, with a volume of $4 trillion average daily trading volume. Now let’s put that into perspective. The New York Stock Exchange (NYSE) trades about $25 billion a day. So not only does this dwarf the trading volume of America’s largest stock exchange but if you combined the volume of ALL stock markets around the world, you still haven’t equaled the daily volume in the forex market.

Forex trading is simply the trading (exchanging) of money. It involves the simultaneous buying of one currency and the selling of another. The “exchange rate” is what you will see quoted. This determines how much currency that another currency can buy.

You will find that there will be many factors that cause these exchange rates to go up and down. Ultimately, the exchange rate is determined by the confidence that the world collectively has in a particular currency. This will be made up of many facets: how their economy is doing, political stability, consumer sentiment, the trend direction of these exchange rates on the charts, etc.