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
equity markets.
"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 Yen (USD/JPY).
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
moves around the globe as the business day begins in each financial center,
first to
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 Reserve
Banks' "All About the Foreign
Exchange Markets in the United States"