Foreign Exchange Marketplace

Foreign exchange is the largest and most liquid market in the world trading approximately $2 trillion daily. The Foreign exchange marketplace is a cash interbank/interdealer market. In other words, this means the foreign currencies bought and sold in the Foreign exchange market are bought and sold directly between banks, foreign currency dealers and Forex traders. It is the tendency for the price of a currency to reflect the impact of a specific action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction.

The Foreign exchange marketplace is not a traditional "marketplace" due to the fact that there is no centralized location for Foreign exchange trading activity and, therefore, trades placed in the Foreign exchange marketplace are considered over-the-counter (OTC). Forex trading between parties occurs through computer terminals, exchanges and over telephones at thousands of banks worldwide. Clients can trade through online Forex trading platforms and/or over the telephone directly with a Forex broker on our trading desk. Forex futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange marketplace volume, according to The Wall Street Journal Europe (during 2006).

Until recently the Foreign exchange market has not been available to the small trader. The large minimum foreign currency transaction sizes and financial requirements left this marketplace in the hands of banks, major foreign currency dealers and the occasional large-scale Foreign exchange speculator. Now, with the ability to influence large-scale positions with a fairly small amount of money (or margin), the Foreign exchange marketplace is now more fluid than ever and available to most investors.

Five major currencies dominate trading in the Forex marketplaces: the U.S. Dollar, Euro, Japanese Yen, Swiss Franc and British Pound. The currencies are bought and sold in pairs in the Foreign exchange spot market. For instance, buying the EUR/USD in the Forex spot market just means the purchaser is buying the Euro and selling the U.S. Dollar in anticipation of the Euro gaining value in comparison to the U.S. Dollar. Similarly, the seller of a EUR/USD contract would be selling the Euro against the U.S. Dollar.

Over the past twenty years, an increase in international trade and foreign investment has made the economies of the world more interconnected. New opportunities for traders have been created with the dramatic growth of the Asian and Latin American economies. Today, supply and demand for a particular currency is the driving factor in determining exchange rates. Many factors such as routinely reported economic figures and unpredicted news reports, such as disasters or political instabilities, could also change the attractiveness of holding a certain currency, thus determing international supply and demand for that currency.