The Foreign Exchange Market (Forex) is a 24-hour over-the-counter market for trading of currencies. Since it has a global scope and is decentralized type of market, transactions take place everywhere in the world with no central and physical location unlike other financial markets like the London Stock Exchange (LSE) and the New York Stock Exchange (NSE). In addition, since there is no clearinghouse or a central exchange, dealers and brokers conduct negotiations directly with one another.
The Forex market is the largest financial market in the world, and not to mention it’s also the most popular among individual investors, central banks, commercial banks, and financial institutions. Since it’s an extremely liquid market, it allows huge trading volumes to take place without greatly affecting price or price action. However, depending on the time of the day and the currency pair, its relative liquidity could influence the market depth.
The Forex market is composed of traders representing hundreds of international banks, central banks, governments, institutional investors, and millions of private traders trading currencies on a daily basis. This huge volume of participants contributes to the market’s turnover rate and based on recent data, it continues to grow. According to the Bank for International Settlements, the daily trading was $5.1 trillion (as of April 2016). In 2010, it was the average daily turnover was just estimated to be $3.9 trillion.
There are different currencies being traded in the forex market but the ones from highly industrialized countries with the most active economies lead the rank. As of 2017 data, the U.S. dollar against other currency remains the most traded in the market, followed by the Euro. Other highly traded currencies include the Japanese yen and Chinese yuan.