Forex is an abbreviation for the foreign exchange and refers to the trading of foreign currencies. The foreign exchange market is the largest and most liquid market in the world. Its trades total $2 trillion every day. The forex market has many characteristics and can be difficult to interpret. However, there are four main characteristics that you should be familiar with if you are thinking of becoming a forex trader.

The first of the four characteristics of forex trading are geographical ones. The foreign exchange market is global. It spans around the entire word and is hugely popular because it is open 24 hours a day in every country. Although the foreign exchange market is worldwide, it does not have a physical, centralized location for activity. However, the major exchanges are located in New York, San Francisco, Hong Kong, London, Tokyo, Singapore, Sydney and Bahrain. Because the forex does not have specific operation site, foreign exchange trades are considered over the counter. Trading takes place through the use of computer terminals, telephones and broker desks.

The next important characteristic to be aware of are the markets main functions. The forex markets major function is to transfer purchasing power. Trades are made by allowing participants to convert their currency revenues into their domestic currency. The forex also helps keep the exchange rate from fluctuating to severely. The market also functions to aid in the movement of goods between countries by providing credit for financing.

Another distinguishing characteristic that you should be aware of before making a trade on the foreign exchange market is its participants. The forex is divided into to main categories, the interbank, or wholesale market and the client, or retail market. Within those two sections there are five different types of participants.

The first set or participants are the bank and non-bank foreign exchange dealers. These participants buy at bid prices and sell at asking prices, aiding in market efficiency. The second type of participant is individuals and investment and commercial firms. They use the forex to help them invest while reducing risk. They often use the forex as a hedging tool. The third group consists of speculators and arbitragers who seek solely to profit from the forex. They attempt to make money for themselves while assuming the least amount of risks.

Central banks and treasuries make up the next set of participants. They use it to change the value of their own currency using their reserves. They attempt to influence the market rather than make profits. The last group is made up of foreign exchange brokers. These are the people who facilitate trading for others and usually charge fees or commission for their services.

The forth characteristic of the forex is that there is little or no inside information. Fluctuations in the exchange rate are cause by actual money flows or an expectation of a change in the flow of money. This expectation of change can be a result of changes in the gross domestic product, budget and trade deficits or surpluses, inflation, the interest rate, and other economic conditions. Since major news about these conditions are generally made through announcements that everyone has access to at the same time, there is little or no insider information that can be provided.

These are the top four characteristic that every trader should know before they become participants in the forex. If you are unaware of these basic characteristics it will be difficult to be a successful trader in the foreign exchange market. Knowing the system before jumping in will help to insure you will get the most out of your trades.