Real definition of FOREX

Pablo Jaguanharo Carvalho Pinheiro
788
Guys, have you ever wondered which financial instrument forex is?
I mean, is it a future contract, option, what category is it?
Yesterday a friend of mine asked me "when you trade a currency pair, what are you exactly trading"? And I couldn't answer ir precisely.

Is there a major purpose on forex market besides speculation? Do real big banks trade it and hold it for themselves?

Also, I have heard it is a trillion market, only if you consider all brokers world wide together, right?

I know I made lots of questions here, but the intention is to talk and share knowledge for a better and deep understanding of forex market. 
thanks.


Alain Verleyen
43000
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Thank-god Avwerosuoghene Odukudu
492
Pablo Jaguanharo Carvalho Pinheiro:
Guys, have you ever wondered which financial instrument forex is?
I mean, is it a future contract, option, what category is it?
Yesterday a friend of mine asked me "when you trade a currency pair, what are you exactly trading"? And I couldn't answer ir precisely.

Is there a major purpose on forex market besides speculation? Do real big banks trade it and hold it for themselves?

Also, I have heard it is a trillion market, only if you consider all brokers world wide together, right?

I know I made lots of questions here, but the intention is to talk and share knowledge for a better and deep understanding of forex market. 
thanks.


  • Trading the "Base" against the "Quote" currency. Future contract, option etc are different from spot market, CFD ... Future, you are trying to buy something in the Future with the current quote etc (in the broad sense), if you are a large commercial manufacturer and you are submitting your quote for a contract, your profit or baseline would be affected depending on where the market moves to, you could buy the quantity you need now for when you would start manufacturing process (There is something called seasonal Tendency). Option is a way of hedging against loss, even Elon musk, bought options when he was selling how many percent stock recently.

  • There is a major purpose to the market as a whole, speculation is just a small part of it (You could check C.O.T report) to see how small speculators are. You can't tell Coca-Cola having companies in different countries not to pay their staff in different countries or move their profits to their headquarters. Ask yourself those Big companies that move their profit to places where they pay small taxes, how they would do it, if not in the market.

  • Yes, it is does transactions in Trillions of Dollars. Brokers are targeting retail traders, how much can a retail traders really trade? Check, B.I.S (Bank of international Settlement) FX Triennial report and be wowed, by the daily turnovers.

  • If it was all speculation, then head and shoulders would always work, don't you think? If I want to order chips from Taiwan or US, you could imagine the problem in 1) Finding who would convert the money for me to dollars if there no market, then is the price too much or too little, since if I manage to find am at the mercy of the person? or 2) Waiting for the reversal before buying.

You could read "History of Fiat Currency", we have always had the exchange market right from the Barter days