What Is FOREX...?

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.