Description of the Forex
The Forex market, established in 1971, was created when floating exchange rates began to
materialize. The Forex market is not centralized, like in currency futures or stock markets. Trading
occurs over computers and telephones at thousands of locations worldwide.
The Foreign Exchange market, commonly referred as FOREX, is where banks, investors and
speculators exchange one currency to another. The largest foreign exchange activity retains
the spot exchange (i.e.., immediate) between five major currencies: US Dollar, British Pound,
Japanese Yen, Eurodollar and the Swiss Franc. It is also the largest financial market in the world.
In comparison, the US stock market may trade $10 billion in one day, whereas the Forex market
will trade up to $2 trillion in one single day. The Forex market is an opened 24 hours a day market
where the primary market for currencies is the 24-hour Interbank market. This market follows the
sun around the world, moving from the major banking centres of the United States to Australia
and New Zealand to the Far East, to Europe and finally back to the Unites States.
Until now, professional traders from major international commercial and investment banks have
dominated the FX market. Other market participants range from large multinational corporations,
global money managers, registered dealers, international money brokers, and futures and options
traders, to private speculators.
There are three main reasons to participate in the FX market. One is to facilitate an actual
transaction, whereby international corporations convert profits made in foreign currencies into
their domestic currency. Corporate treasurers and money managers also enter the FX market in
order to hedge against unwanted exposure to future price movements in the currency market. The
third and more popular reason is speculation for profit. In fact, today it is estimated that less than
5% of all trading on the FX market is actually facilitating a true commercial transaction.
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. 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 Forex market, established in 1971, was created when floating exchange rates began to
materialize. The Forex market is not centralized, like in currency futures or stock markets. Trading
occurs over computers and telephones at thousands of locations worldwide.
The Foreign Exchange market, commonly referred as FOREX, is where banks, investors and
speculators exchange one currency to another. The largest foreign exchange activity retains
the spot exchange (i.e.., immediate) between five major currencies: US Dollar, British Pound,
Japanese Yen, Eurodollar and the Swiss Franc. It is also the largest financial market in the world.
In comparison, the US stock market may trade $10 billion in one day, whereas the Forex market
will trade up to $2 trillion in one single day. The Forex market is an opened 24 hours a day market
where the primary market for currencies is the 24-hour Interbank market. This market follows the
sun around the world, moving from the major banking centres of the United States to Australia
and New Zealand to the Far East, to Europe and finally back to the Unites States.
Until now, professional traders from major international commercial and investment banks have
dominated the FX market. Other market participants range from large multinational corporations,
global money managers, registered dealers, international money brokers, and futures and options
traders, to private speculators.
There are three main reasons to participate in the FX market. One is to facilitate an actual
transaction, whereby international corporations convert profits made in foreign currencies into
their domestic currency. Corporate treasurers and money managers also enter the FX market in
order to hedge against unwanted exposure to future price movements in the currency market. The
third and more popular reason is speculation for profit. In fact, today it is estimated that less than
5% of all trading on the FX market is actually facilitating a true commercial transaction.
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. 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.
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