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.
For more background about the Foreign Exchange market, review the Federal
About the Foreign Exchange Markets in the United States"