Forex markets: The king of money markets

Imagine a market where more than 10 times the average daily turnover of global equity markets takes place or where over 30 times the daily volume of NASDAQ and NYSE gets traded in a single day. This market is the forex market — the largest and most liquid market in world trading. The forex markets record a turnover of approximately $ 2 trillion a day!

The forex, FX or foreign exchange market is actually a decentralized,
over-the-counter market, also known as the interbank/ interdealer market. It is a trading facility through which foreign currencies are traded directly between banks, foreign currency dealers and forex investors across the world. There is no centralized location for FX trading activity. All trading is online, and occurs over hundreds of thousands of locations worldwide.

Until recently, the major players of this market were banks. But now, with the ability to leverage large positions with a relatively small amount of capital, the forex market is more liquid than ever and has opened its doors to the small speculators also.

One great thing about this market is its trading hours – 24 hours a day with trading beginning in New Zealand, followed by Australia, Asia, the Middle East, Europe, and America. The major markets involved are London, New York, Tokyo with the US & UK accounting for more than 50 per cent of the turnover. Trading activity is usually the heaviest when major markets overlap.

There are five major currencies that dominate trading: the U.S. Dollar, Euro currency, Japanese Yen, Swiss Franc and British Pound. These foreign currencies are traded in pairs or as crosses in the forex ’spot’ market.

Today, the crucial factor determining exchange rates is the supply and demand for a particular currency which in turn is governed by the strength of the currency and the world situation. For those investors who know how to read these changes, the forex market is the right place to trade.

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