FOREX – the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is the largestfinancial market in the world, with a volume of over $3 trillion a day; more than three times the aggregate amount of the US Equity and Treasury markets combined.
The Forex market differs to other financial markets because it has no physical location and no central exchange. Instead it operates through a global network of banks, corporations and individuals trading one currency for another. Due to the lack of a physical exchange the Forex market operates on a 24-hour basis, spanning from one timezone to another in the world’s major financial centres.
A large part of the market is made up of currency traders, who speculate on movements in exchange rates, trying to take advantage of even small fluctuations in exchange rates. In addition to traders there are participants in the market who are simply looking to exchange foreign currency for their own currency such as multinational businesses who trade in different countries.
Exchange rate fluctuations are caused by actual monetary flows as well as anticipations on global macroeconomic conditions.The foreign exchange market is often viewed as a ‘pure’ market with very little or no ‘inside information’. Significant news affecting the market is released publicly so, in theory, everyone in the world has access to the same news at the same time. In essence, this translates into a level playing field for anyone wanting to trade Forex from home.
Next time we’ll cover what is actually traded on the Foreign Exchange Market.