The Foreign Exchange Market

The global Forex market is one of the largest and fastest growing markets in the world, now worth more than US$1.5 trillion a day.

Indeed it is so large that no one market player can directly control the market. Even governments have tried and failed.

It is also the most exciting market in the world. Famous traders such as George Soros have taken huge gambles on the Forex markets and won.

Central and commercial banks, institutions, multi-national corporations, speculators and private investors all use foreign currency markets.

The Forex market is used to pay for imports, exports and multi-national deals. It is also used by banks and investors who speculate on the likely rises and falls in currencies.

The most important foreign exchange activity is between the US dollar and four major currencies (British Pound, Euro, Swiss Franc, and Japanese Yen).

There is no central trading floor. Trading occurs instantly over the telephone and through computer terminals worldwide.

The more accessible a currency is to different countries, traders, and banks, the more it can be traded. The more trading that occurs in a currency, the greater its liquidity and therefore its efficiency.

Liquidity indicates the ease with which buyers and sellers are able to enter and exit the market. The more traders that are buying and selling a currency, the greater the likelihood of a seller wanting to sell at the same price a buyer is willing to pay. A very liquid market has numerous participants buying and selling at the same prices. An extremely liquid market is said to be 'deep', signifying the large number of buyers and sellers willing to trade at any given price.