History of the Forex Market
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 well over US$1 trillion -- 30 times larger than the combined volume
of all U.S. equity markets.
"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, 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, 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' 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.
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