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The
Foreign Exchange Market
The Foreign Exchange
Market goes by many names—Currency Exchange, Foreign
Exchange, Forex, FX—but no matter the term, it is
simply the trading of one currency against another.
Currencies are traded in the form of currency pairs
with pricing based on exchange rates and spreads
established by participants in the forex market.
History
The forex market is
an inter-bank or inter-dealer
network first established in 1971 when many of the
world’s major currencies moved towards floating
exchange rates. It is considered an over-the-counter
(OTC) market, meaning that transactions are
conducted between two counter parties that agree to
trade via telephone or electronic network. OTC
trades are not centralized in one location like some
equity stock markets such as the New York Stock
Exchange (NYSE) or the Chicago Options Board
Exchange (CBOE) where options and futures are
traded.As FX trading has evolved, several locations
have emerged as market leaders. Currently, London,
England contributes the greatest share of
transactions with over 32% of the total trades.
Forex
Market Size
The FX market has
become the world’s largest financial market, and it
is not uncommon to see over $3 trillion US traded
each day. By contrast, the NYSE— the world’s largest
equity market with daily trading volumes in the $60
to $80 billion dollar range—is positively dwarfed
when compared to the FX market. Even when combining
the US bond and equity markets, total daily volumes
still do not come close to the values traded on the
currency market |
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