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Chapter 1, Part I. FOREX – What is it? | Forex Military School Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Commander in Pips: Right, the situation is similar in other countries – Australia, the EU, New Zealand, Russia, China etc. There is no big deal about choosing the particular country for example. The point is that different countries have different currencies and there is a world wide mechanism that makes it easy to make an exchange from one currency to another - and in huge volumes. That is FOREX.

    But just one note is worth saying here – not all currencies are freely convertible. Some currencies do not have an absolutely natural rate of exchange. Usually, it happens when government puts a ceiling and floor for national currency fluctuations. One of the best examples is Chinese Yuan, which trades in a narrow range each day. The most obvious purpose of this is economic protection of national manufacturing. A few countries even artificially lock their exchange rates so they don’t fluctuate at all. Usually, you can only buy those currencies when you arrive in the country and have to change whatever is left back to your original currency when you leave.


    Pipruit: So, FOREX is just a number of people who change their currencies in exchange centers, isn’t it?​

    Commander in Pips: Not quite. These people are just the smallest tip of the iceberg. Where do you think the foreign currency from exchange centers is transferred to?

    Pipruit: Well, different exchange centers belong to different banks, so it seems that currency is also…​

    Commander in Pips: Right, you just pointed out the biggest participants in the FX market – banks. There are many different banks – large and small, but the largest are transnational banks and government central banks. These large banks are major participants of FOREX market. All these participants link with each other.

    Pipruit: Wait a minute. But how we should trade currency, via exchange centers in banks?​

    Commander in Pips: You could do it in this way, but do you really want to sit in the bank lobby or at the airport watching the quote board? There is a much better way to trade. There are special institutions that exist just for this purpose – Retail FOREX brokers. Their business is to provide fast and simple access to the FOREX market to all who wish to trade, even to individuals. All that you have to do is to sign a typical agreement and transfer money to your trading account.
     
    zendo, j0hnard, dalenathens and 37 others like this.
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