The Mechanics of The Forex Market

Before turning our attention to the mechanics of Forex trading it is important to note that, like many other markets, the Forex market is not one single market but is a series of markets many of which are derived from the central foreign currency market.

These markets include trading in options, futures and forwards. For the purpose of this course however we will concern ourselves with the main currency exchange market, which is often known as the Spot or Cash market.

Another term that you will frequently come across in the world of Forex trading is 'Interbank'. Foreign currency trading was originally confined to the major commercial banks and so all currency trading was carried out inter-bank or between the banks. Today, there are many more players in the market including a variety of financial institutions, dealers, brokers and private individuals, but the term 'Interbank' is still commonly used when referring to the Forex market.

We won't stop to examine the makeup of the market here but, if you would like to know more about this aspect of the market, then there are two excellent articles in the Forex articles section of our site entitled The Role Of The Commercial Banks In World Currency Trading and Forex Traders Come In Various Shapes And Sizes.

Although the Forex market exists for the purpose of buying and selling currency the majority or orders placed are never fulfilled. In other words, most of the trading carried out is purely speculative in nature and the bank, institution or individual buying a currency never has any intention of actually taking delivery of that currency but is simply buying and selling to profit from the movement of the currencies concerned. There are a wealth of forex trading systems out there to choose from, so be sure to do your research.

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