History of the Forex Market
The Foreign Exchange market, also
referred to as the "Forex" or "FX" market is the largest financial market
in the world, with a daily average turnover of well over US$1 trillion
-- 30 times larger than the combined volume of all
"Foreign Exchange" is the simultaneous
buying of one currency and selling of another. Currencies are traded
in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese
There are two reasons to buy and
sell currencies. About 5% of daily turnover is from companies and governments
that buy or sell products and services in a foreign country or must
convert profits made in foreign currencies into their domestic currency.
The other 95% is trading for profit, or speculation.
For speculators, the best trading
opportunities are with the most commonly traded (and therefore most
liquid) currencies, called "the Majors." Today, more than 85% of all
daily transactions involve trading of the Majors, which include the
US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian
Dollar and Australian Dollar.
A true 24-hour market, Forex trading
begins each day in Sydney,
and moves around the globe as the business day begins in each financial
center, first to Tokyo,
London, and New York.
Unlike any other financial market, investors can respond to currency
fluctuations caused by economic, social and political events at the
time they occur - day or night.
The FX market is considered an
Over The Counter (OTC) or 'interbank' market, due to the fact that transactions
are conducted between two counterparts over the telephone or via an
electronic network. Trading is not centralized on an exchange, as with
the stock and futures markets.
For more background about the Foreign Exchange market, review the Federal
"All About the Foreign Exchange Markets in the United States"