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 US$3.2 trillion.
"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, we believe 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 from Sunday 5:00 PM ET to Friday 5:00PM ET, 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/interdealer' 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.
More information
For more background about the Foreign Exchange market, review the Federal Reserve Banks' "All About the Foreign Exchange Markets in the United States".
