FX or FOREX stands for 'Foreign Exchange', referring to trade one currency to another currency.
Currency has been used among a society or a same cultural area. According to some history books, the ancient concept of money or currency was started from Mesopotamia circa 3000 BC. Also some societies in the Americas, Asia, Africa and south Pacific used cowry shell and stone as money. This was the dynamic change in human history to use money instead of barter exchanges. Furthermore, the Lydians were said to be the first people to use gold and silver coins.
After that, the concept of a country had been established, and the currency was gradually distributed in the region to dominate. The trade with distant countries was also active as well as neighbouring countries. As a result, the monetary exchange became essential.
The currency exchange had been performed as an axis gold mainstream in the modern period. This is referred to as the gold standard. After World War II, the gold standard seemed to be established especially based on the Bretton Woods system. However, the gold standard was ended as the Nixon shock in 1973 cancelled the convertibility of the U.S. dollar and gold. It was shifted to a floating exchange rate system.
After the floating exchange rate system was established, in addition to currency trading with real demand, the financial institutions, mainly the banks, came into speculative trading.
It has initially been thought that this speculative trading market was for professional players. However, it was rapidly prevailed even among ordinary people as well as professional players with the development of information technology. Especially in the 21st century, its innovation and rapid spread of the internet accelerate possible high-speed transactions for retail, as they are remarkable.
The Forex market is a 24-hour market 5.5 days a week. The markets are closed for only a short period of time on the weekends. As some financial centres close, other open. The 24-hour market means that exchange rates and market conditions can change in response to developments of as it can take place at any time. This significantly differs from the stock or bond markets, which primarily trade only when the exchanges open. Although there is some overnight trading of stocks, it is a limited market with a lot less liquidity or volume.
This business is heaviest when both the United States markets and the major European markets open. That is when it is morning in New York and afternoon in London. In the New York market, nearly two thirds of the day's trading activities take place in the morning hours before the London markets close. Activity in the New York market slows in the mid to late afternoon after the European markets close and before the Asian markets of Tokyo, Hong Kong and Singapore open.
Today's features of the foreign exchange markets: Today's system of floating exchange rates is not carefully planned system. Instead, it was one born by default as the Smithsonian Agreement and European Joint Float failed to gain momentum. Yet the foreign exchange market is by far the largest and most liquid market in the world today.
The floating system allows the values of currencies to rise and fall based on the basic laws of supply and demand. When the supply of a currency starts dropping, there is more supply available than the demand. The opposite can be true when the supply of a currency is tight. When less money is available for trade, the price of the currency goes up because more people want the currency than what is available for purchase.
Major currencies move independently from other currencies in these days. They can now be traded by anyone from individual retail investors to large central banks.