The currency (foreign exchange) market is the largest and
oldest financial market in the world. It is also called the foreign exchange
market, or "FOREX" or "FX" market for short. It is the biggest and most liquid
market in the world, and it is traded mainly through the 24 hour-a-day
inter-bank currency market - the primary market for currencies.
In addition to longer term trading,
the forex
market is a cash (or "spot") inter-bank market.
By comparison, the currency futures market is only one
per cent as big.
Foreign Exchange simply means the buying of one currency and
selling another at the same time. In other words, the currency of one country
is exchanged for those of another. The currencies of the world are on a
floating exchange rate, and are always traded in pairs - Euro/Dollar,
Dollar/Yen, etc. in excess of 85 percent all daily transactions involve trading
of the major currencies - Australian Dollar, British Pound, Canadian Dollar,
Japanese Jen, Swiss Franc, and the U.S. Dollar.
Unlike the futures and stock markets, trading of currencies
is not centralized on an exchange. Forex literally follows the sun around the
world. Trading moves from major banking centers of Australia and New
Zealand, to the Far East, to Europe and finally to the U.S.
In the past, the forex inter-bank market was not available
to small speculators due to the large minimum transaction sizes and
often-stringent financial requirements. Banks, major currency dealers and the
occasional huge speculator used to be the principal dealers. Only they were
able to take advantage of the currency market's fantastic liquidity and strong
trending nature of many of the world's primary currency exchange rates.
Today, foreign exchange market maker brokers such as Equal
Trading are able to break down the larger sized inter-bank units, and offer
small traders the opportunity to buy or sell any number of these smaller units
(lots). These brokers give virtually any size trader, including individual
speculator or smaller companies, the option to trade the same rates and price
movements as the large players who once dominated the market. Market makers
quote buying and selling rates for currencies, and they profit on the
different between their buying and selling rates.
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