Forex Market Overview

“FX” is an abbreviation for “forex” or “currency exchange.” The forex market is the largest and most liquid market in the world, trading approximately $2 trillion every day (that’s more than 30 times the daily volume of the NASDAQ and NYSE combined). The foreign exchange market is an interbank/interdealer cash market. In simpler terms, this means that foreign currencies traded on the foreign exchange market are traded directly between banks, currency traders, and currency investors who want to diversify, speculate, or hedge currency risk. The forex market is not an “exchange” in the traditional sense due to the fact that there is no centralized location for forex trading activity and therefore transactions made on the forex market are considered over-the-counter (OTC). ). Currency trading between parties is conducted through computer terminals, exchanges, and telephones in thousands of locations around the world. CFOS/FX clients can trade via online forex trading platforms and/or over the phone directly with a forex broker on our dealing desk.

Until recently the foreign exchange market has not been available to the small speculator. Large minimum foreign currency transaction sizes and financial requirements left this market in the hands of banks, major forex dealers, and the occasional large forex speculator. Now, with the ability to take advantage of large positions with a relatively small amount of capital (margin), the forex market is now more liquid than ever and available to most investors.

Five major currencies dominate transactions on the foreign exchange markets: the US dollar, the Eurocurrency, the Japanese yen, the Swiss franc, and the British pound. Foreign currencies are traded in pairs, also known as crosses, on the foreign exchange spot market. For example, buying EUR/USD on the spot currency market simply means that the buyer is buying the Eurocurrency and selling the US dollar in anticipation of the Eurocurrency gaining in value relative to the US dollar. Similarly, the seller of a EUR/USD contract would be selling the Eurocurrency against the US dollar. Official figures show that the US dollar is on one side of 83% of all spot currency transactions. The “spot” market simply refers to a currency contract with a rapid valuation date that requires settlement within two business days.

Over the past few decades, an increase in international trade and foreign investment has made the world’s economies more interrelated. New opportunities for investors have also been created with the fall of communism and the spectacular growth of the economies of Asia and Latin America. Today, the supply and demand for a particular currency is the determining factor in determining exchange rates. Many factors, such as regularly reported economic figures and unexpected news such as disasters or political instability, could also alter the desirability of owning a particular currency, thus influencing the international supply and demand for that currency. It should come as no surprise that many astute investors have already taken advantage of fluctuating exchange rates to huge profits.