The Foreign Exchange Market

The Foreign Exchange Market (currency, forex, or FX) market is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Now, the FX market is one of the largest and most liquid financial mark and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney’s annual FX Poll, volumes grew a further 41% between 2007 and 2008.
The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.

The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders’ investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events. The main enticements of currency dealing to private investors and attractions for short-term Forex trading are:

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  24-hour trading, 5 days a week with non-stop access to global Forex dealers.
  An enormous liquid market making it easy to trade most currencies.
  Volatile markets offering profit opportunities.
  Standard instruments for controlling risk exposure.
  The ability to profit in rising or falling markets.
  Leveraged trading with low margin requirements.
  Many options for zero commission trading.