The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. This includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market in the world. The .
Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market does not determine the relative values of different currencies, but sets the current market price of the value of one currency as demanded against another.
The market in which participants from around the world are able to buy, sell, exchange and speculate on different currencies. International currency markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, retail forex brokers and investors.
Currency prices are affected by a variety of economic and political conditions, but probably the most important are interest rates, international trade, inflation, and political stability. Sometimes governments actually participate in the foreign exchange market to influence the value of their currencies. They do this either by flooding the market with their in an attempt to lower the price or, conversely, buying in order to raise the price.
This is known as . Any of these factors, as well as large market orders, can cause high . However, the size and volume of the FOREX market make it impossible for any one entity to drive the market for any length of time.
may be a stand-alone business or may be part of the services offered by a bank or other financial institution. The currency exchange profits from its services either through adjusting the exchange rate or taking a commission. Also referred to as a foreign exchange market and a bureau de change.
The foreign exchange market is unique because of the following characteristics:
Its huge trading volume representing the largest asset class in the world leading to high liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
The variety of factors that affect exchange rates;
The low margins of relative profit compared with other markets of fixed income; and
The use of leverage to enhance profit and loss margins and with respect to account size.
According to the Bank for International Settlements, the preliminary global results from the 2013 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.3 trillion per day in April 2013. This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007.
Foreign exchange swaps were the most actively traded instruments in April 2013, at $2.2 trillion per day, followed by spot trading at $2.0 trillion. According to the Bank for International Settlements, as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion. The $3.98 trillion break-down is as follows:
$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 and other products