Last updated: December 29, 2018
The Best Forex Hosting: Who’s The Best For Your Site? [Updated: 2019]
Forex, or Foreign Exchange Trading, is a booming, multi-billion dollar market, involving players at every level from gigantic, multi-national banks to lone-wolf traders. Individuals involved in the currency trade usually rely on complex Forex Trading software, which helps them connect to currency markets and execute trades efficiently. Rather than running this software on their local machines, they usually use Forex Hosting, specialized web hosting plans that provide the unique features they need.
What Is Forex?
Forex is the common term for the Foreign Exchange Market, the global trade in currency. The scale of the global trade in currencies is a little hard to measure, but it easily exceeds $5 trillion per day, dwarfing trade volumes in other asset classes like equities (stocks) or futures.
The Forex market is decentralized — there is no single official clearing-house for currency trades. Rather, major global market centers such as London, New York, Tokyo, Zurich, Hong Kong, and Singapore acts as anchors for Foreign Exchange trade activity.
Who Trades on the Forex Market — and Why?
A lot of people and institutions are involved in the Forex trade, all with different motivations.
The foundation of the Forex trade is the interbank market, very large (multi-million and multi-billion dollar) trades between a handful of very large financial institutions (mostly banks and some insurance companies). Some of this activity is directly profit-seeking, that is — trying to make money on the “spread” of values between currencies, or the expected change in currency valuation. Much of it is in support of the activity of lower levels of currency trading. These transactions are not conducted publicly, so the details of their volume and the exact spread is not known outside the small circle of players. The interbank market accounts for about 35-40% of the Forex market.
- Smaller banks, large multi-national corporations, hedge funds, and other institutional traders are involved for reasons of:
- risk hedging — spreading out the risk that any one currency will lose value
- business needs — a company that primarily earns money in one country and spends money in another will need to exchange earned currency for spendable currency
- profit-seeking — again, some traders are simply looking to make money through speculation or arbitrage
National central banks participate in the Forex market primarily as political actors, attempting to stabilize currency value, effect a particular target interest or exchange rate, or to pursue other monetary policy goals.
Brokers and market makers engage in Forex trading primarily to support the Forex activity (retail and speculative) of smaller-scale traders.
Retail currency traders assist international travelers who need to have spendable currency in more than one country.
Individual speculators (day traders) attempt to make money as exchange rates change, as well (less often) through arbitrage (exploiting the difference between exchange rates in two different markets). Arbitrage is seldom a profitable enterprise for small-scale traders because of the relative efficiency of the currency exchange market and the costs associated with trading.