Forex represents the global market of currency exchange operations - one of the largest segments of the global financial market. In organization and technical aspects, Forex functions as a system of banks united into a common informational network and systematically carrying out cashless operations for currency exchange with each other. It should be noted initially that Forex is not an exchange in legal and organizational sense.
The standard currency exchange operations that are carried out by Forex participants can have different specifics depending on what goals they pursue:
- Currency speculations (making profit if currency sale rate in regard to currency exchange transaction is higher than its purchase rate);
- Hedging operations (insuring various commercial transactions and assets nominated in foreign currency from unwanted change of currency rate);
- Currency exchange operations carried out by Forex parties when required and not pursuing speculative purposes (for instance, importers buy, and exporters sell foreign currency, which is stipulated by foreign trade activity specifics);
- Intervention operations carried out by central banks of various countries at Forex with the purpose of regulating currency rates in the interest of economic development of specific countries (implemented by means of carrying out currency exchange operations in large volumes that can affect the exchange rate of a specific currency).
Commercial banks that ensure direct currency exchange operations are indispensable and very significant currency exchange operation parties from the point of view of Forex activity. Due to the activity of the banks, Forex gets an opportunity to provide stable support to its liquidity at quite a high level - probably, the highest among all financial market segments.
Large banks and broker companies that specialize in currency exchange transactions can act as market makers, directly being involved in forming currency quotes for the market and ensuring around-the-clock liquidity under various currency pairs traded at Forex. The other Forex participants simply get currency quotes not being able to influence currency exchange rate.
Systematic carrying out currency exchange transactions at Forex is usually named as "Forex trading" or "currency dealing". Private traders (physical parties) have an opportunity to work at Forex through the Internet exclusively through intermediary of a qualified Forex broker who ensures that traders have access to the infrastructure required for Forex trading. Internet trading at Forex is carried out by traders around-the-clock with the help of a trading platform - a multifunctional computer program allowing prompt performance of all the set of Forex trading procedures (obtaining currency quotes from the broker, analysis of the situation in the market regarding various currency pairs, carrying out Forex transactions by means of placing electronic orders to the broker).
It should be noted that cooperation with a Forex broker allows a private trader to use favorable opportunities for margin trading. The advantage of margin trading for the trader is that he/she (trader) carries out Forex transactions in the volumes that exceed the required size of trading capital in many times. In other words, the broker provides a "credit leverage" to the trader backed by a certain quanity of funds on this trader's trading account. This way, Forex trading under marginal principle allows the speculator to earn both on the rise (BUY transactions) and on the fall (SELL transactions) of a currency exchange rate.