Forex stands for FOReign EXchange and represents the mechanism by which the value (price) of a currency is established in relation to another. This value is called the exchange rate and the FOREX market is the market on which the various currencies are exchanged.
The FOREX market was born because any economic transaction involving two operators of different nationalities has to pass, sooner or later, through the stage of the purchase and sale of currencies. Over the last twenty years, however, the role of pure speculation on FOREX has become increasingly important, to the extent that, today, around 90% of the transactions on this market are speculative.
The FOREX market is an "over-the-counter" market and has no precise physical location. FOREX trades are made bilaterally, between two contracting parties, who independently establish the terms of the exchange contract. So, the rates indicated by the international information circuits, such as Reuters or Bloomberg, are indicative and not operational, and there are no predetermined quantities, settlement methods and due dates.
The main actors on this market are banks, brokers, hedge funds and central banks.
The Forex market is open 24 hours a day, uninterruptedly, from Sunday night (Monday morning in Japan) to Friday evening (close of the US Markets.
The value of a currency reflects the economic situation of the country involved. The variables that describe this situation, e.g. inflation, interest rates, GDP growth, etc., are referred to as "fundamentals". They also include the exchange rate, which influences and, in turn, is influenced by the other "fundamentals".
Generally speaking, fundamentals indicating a flourishing economic situation with good future prospects tend to cause the value of a currency to rise, and vice versa.
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