"The foreign exchange market (forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies."
The market in which currencies are traded.
Foreign Exchange Market: This is the market where currencies are traded. It is a decentralized market, and the exchange takes place between two parties over the counter.
Exchange Rates: Exchange rates are the values at which one currency can be exchanged for another. They are determined by market forces, such as supply and demand, and government policies.
Currency Pairs: A currency pair is the quotation and pricing structure of the currencies that are traded in the forex market. They are always traded in pairs and are quoted using two-letter currency codes.
Currency Trading: This refers to the buying and selling of currencies in the foreign exchange market to make a profit.
Forex Brokers: Forex brokers are companies that provide access to the forex market and facilitate currency trading. They may charge a commission or spread on the trades made by their clients.
Fundamental Analysis: This is a method of analyzing the forex market by looking at economic and political factors that can affect currencies.
Technical Analysis: This is a method of analyzing the forex market by looking at historical price and volume data to forecast future price movements.
Foreign Exchange Risk: This refers to the risk of financial loss due to changes in exchange rates. It is a risk faced by companies that engage in international trade or investment.
Hedging: This is a method of managing foreign exchange risk by taking a position in the forex market that offsets the risk of a transaction.
Central Banks: Central banks are responsible for setting monetary policy in a country, which can affect the exchange rate of its currency.
Monetary Policy: This refers to the actions taken by a central bank to control the money supply and interest rates in the economy.
International Finance: This is a field of finance that deals with the flows of capital across borders and the exchange rates of currencies.
International Trade: This refers to the exchange of goods and services between countries. It can affect exchange rates and foreign exchange risk.
Balance of Payments: This is a record of all the transactions between a country and the rest of the world over a period of time. It can be used to analyze a country's international financial position.
International Monetary System: This refers to the framework of rules and institutions that govern international monetary relations, including exchange rates and currency trading.
Capital Flows: This is the movement of money between countries for investment or trade purposes. It can affect the exchange rate of currencies.
Arbitrage: This is a trading strategy that involves buying and selling the same financial instrument in different markets to take advantage of price differences.
Carry Trade: This is a trading strategy that involves borrowing in a low-interest rate currency and investing in a high-interest rate currency to earn a profit from the interest rate differential.
Liquidity: This refers to the ease with which an asset can be bought or sold without affecting its price. It is an important factor in the forex market.
Volatility: This refers to the degree of price fluctuations in a financial instrument over a period of time. It is an important consideration for forex traders.
Spot Market: The spot market is a cash market where currencies are bought and sold for immediate delivery.
Forward Market: In a forward market, currencies are bought and sold for delivery at a future date (usually 30, 60, or 90 days).
Futures Market: Futures markets are similar to forward markets except they are exchange-traded and have standardized contract sizes and delivery dates.
Options Market: An options market is where individuals can buy and sell options contracts that give them the right (but not the obligation) to buy or sell currencies at a certain price and date.
Exchange-Traded Funds (ETF): ETFs are securities that track the performance of a currency index and can be traded on stock exchanges like stocks.
Forex Brokers: Forex brokers act as intermediaries between buyers and sellers of currencies and provide access to the currency markets.
Interbank Market: The interbank market is where large financial institutions trade currencies with each other.
Offshore Market: An offshore market is a market where currencies are traded outside the home country's regulatory jurisdiction.
Black Market: The black market is an illegal market where currencies are sold outside the formal banking system.
Electronic Communication Network (ECN): An electronic communication network is an automated system that matches buy and sell orders electronically without the need for a broker or market maker.
Over-The-Counter (OTC) Market: The OTC market is where currencies are traded outside of formal exchanges and primarily through a network of dealers.
Central Bank Foreign Exchange Market: The central bank foreign exchange market is where a country's central bank intervenes in currency markets to maintain the value of its currency.
"This market determines foreign exchange rates for every currency."
"The main participants in this market are the larger international banks."
"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 set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another."
"Banks turn to a smaller number of financial firms known as 'dealers,' who are involved in large quantities of foreign exchange trading."
"Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the 'interbank market.'"
"The foreign exchange market assists international trade and investments by enabling currency conversion."
"The modern foreign exchange market began forming during the 1970s. This followed three decades of government restrictions on foreign exchange transactions under the Bretton Woods system of monetary management."
- Huge trading volume and high liquidity - Geographical dispersion - Continuous operation, except for weekends - Variety of factors affecting exchange rates - Low relative profit margins compared to other fixed-income markets - Use of leverage for profit and loss margins "[...] 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 for weekends, i.e., trading from 22:00 UTC on Sunday (Sydney) until 22:00 UTC 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 2022 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged US$7.5 trillion per day in April 2022."
"Measured by value, foreign exchange swaps were traded more than any other instrument in April 2022, at US$3.8 trillion per day."
"$2.1 trillion in spot transactions"
"$1.2 trillion in outright forwards"
"$124 billion currency swaps"
"$304 billion in options and other products"