Forex refers to the foreign exchange market and the buying and selling of these currencies. The currency exchange transactions carried out daily exceed 3 trillion US dollars in the Forex market making it the largest financial market in the world.
Each and every one of these transactions plays a key role in establishing exchange rates for currency pairs. For example, when an international institution pays the financial dues of its foreign employees, the institution converts the foreign currency into its domestic currency. Over time, these transactions will lead to a change in the exchange rate.
The value of the currency strengthens when money flows into it and weakens when money flows out. These changes in the exchange rates are what give life to the Forex market.
Forex traders attempt to predict the direction of the exchange just as stock traders attempt to predict the direction of the value of a company’s stocks.
Forex traders would buy a currency pair when they believe that the exchange rate will increase and they will sell the currency pair when they believe that the exchange rate will decline. As the forex market is a global market, they can do transactions 24 hours a day.
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The United States and Britain hold 50 per cent of the world market.