Forex (Foreign Exchange) is the world's largest market, with trades totaling more than USD 3 trillion a day. It's a virtual network of currency deals connected by various means of telecommunications: internet, fax, and phone. Forex currency workers are connected to leading world financial centers, such as large banks and hedge funds.
It is also a 24 hour operation that begins at 5pm on Sunday and ends at 5pm on Friday. The 24 hour nature of the market, the massive liquidity, speed of trade executions, and the number one reason Forex is so popular - leverage - all tend to draw in speculators rather than buy-and-hold type investors. As such, it's not an appropriate place for those investing retirement funds or the traditional blue-chip stock "buy and hold" methodology. It's really only within the past few years that private investors not normally employed in the financial industry have been able to invest in the market.
The aforementioned 'leverage' is the principle whereby an investor can control a large number of resources with only a small amount of money down. For instance, a buyer could control $10 worth of trades with only a $1 investment. This can be a very lucrative way to make money, since one's buying power is magnified; however, it can lead to steep losses very quickly. Leverage was one of the main reasons that Lehman Brothers failed in 2008; they were over-leveraged, and when they started to suffer losses, they didn't have enough money to back up their position in the market.
Forex is not a currency exchange with strict rules and opening times. It's kind of like the Wild West of the world financial system (derivatives are also a similarly unregulated area, but not open to the casual investor like Forex is). Forex is known for its ability to adapt to the strong demand of real-time information as markets move instantaneously. Traders can react to news when it breaks, rather than waiting for the market to open since the Forex exchange is open 24 hours a day for 5 days out of the week! Traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traders only pay a spread and a broker's commission ranging from $20-$120 depending on the volume of the trade.
Traders know that one of the best ways to profit via Forex is to anticipate where the best deals will appear. It is highly suggested that anyone who wants to invest in Forex educate themselves before they begin to invest, because an uninformed investor can lose a lot of money very quickly from even the smallest mistakes.
