Foreign Exchange Markets

The foreign exchange markets (Forex, FX, or currency markets) consists of over-the-counter financial markets around the world, where international currencies are traded. The currency markets function non stop around the clock (that is they function 24 hours a day), except for a brief period over weekends.

These currency markets are decentralized, unlike the other financial markets such as the stock market, the currency futures market , and the options on currency futures markets, which are traded through specific exchanges.

On average the daily turnover in the foreign currency markets is in the region of $4 to $4.5 trillion.

The Major Foreign Exchange Markets

Although the foreign currency markets function 24 hours a day, they are separated into geographical regional centres to cater to the local money markets and customers.

The major regional currency markets are London (the largest centre), New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney. London is the largest currency market, followed by New York, then Tokyo.

The Participants In Forex Market

The major participants in the foreign cexchange market are: Investment banks; commercial banks; central banks; trading institutions; hedge funds; corporations; and private investors.

Central Banks. In addition to regulating the domestic monetary policy and the flow of money and credit in its country, the central bank may also intervene in the foreign currency markets to adjust trading imbalances and also for commercial purposes.

Commercial Banks. The Commercial banks are players in the currency markets, for both their clients and themselves as foreign currency trading provides them with an addition source of profits. They are the source through which companies and individual investors purchase their foreign currency.

Investment Banks. The investment banks are active in the currency markets for the same reasons as the commercial banks, profits.

Trading Institutions (Brokers) These trading institutions and brokers earn their profits (commissions) by bring buyers and sellers together.

Hedge Funds. Hedge funds represent high net worth investors in the currency markets world-wide. They are usually compensated on performance. Their trading activities and their large amounts of investment funds can often create highly volatile conditions in the foreign currency markets.

Private Investors. These would include the high net worth individuals, who invest in the currency markets through investment banks and large brokerage firms, and the individual investors who invest much smaller amounts of money.

There are numerous foreign exchange markets located around the world which enable dealers in different global locations find a market that is open.