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The foreign exchange market (forex or FX for short) is the financial market in the world where different national currencies are traded. Simplest way to explain what is FX market is that -it’s a market where people buy and sell money at any given time.
Forex is so huge, every day close to $4 trillion volume is traded through the Forex Market. Main players participating in Forex are – government, central banks, commercial and investment banks, massive multinational corporations and hedge funds. Some of the volume in the forex market is simply banks and corporations exchanging a foreign currency for another. Last but not at least, traders take part Forex trading by analyzing the fluctuations. See below the graph that explains the differences in the average daily trading volume for the forex market, New York Stock Exchange, Tokyo Stock Exchange, and London Stock Exchange:
Let us break down the $4 trillion volume:
$1.490 trillion in spot transactions
$475 billion in outright forwards
$1.765 trillion in foreign exchange swaps
$43 billion currency swaps
$207 billion in options and other products
One of advantages in FX market is that it’s open 24 hours a day 5 day a week. The market opens at 20:15 GMT on Sunday and operates till 22:00 GMT on Friday. The fact that forex is traded through ECNs, rather than a physical exchange (NYSE), means that it doesn’t have to close. Thanks to the different time zones around the world, there is always a country open for business.
FX is one of the most exciting, fast-paced markets around. Until recently years, forex was open to large financial institutions. The increasing popularity of the internet by 1998, allowed smaller trader to access to the Forex Market. Forex is traded through an ECN. ECNs first started being used in 1998 when the SEC (Securities and Exchange Commission) authorized their creation. ECNs are what allow small traders to trade from home 24 hours per day.