Foreign Exchange

FX Image

What is FX

The foreign exchange market is the largest cash market in the world. Different currencies are traded, bought and sold across local and global markets. Foreign exchange markets determine the relative values of different currencies, and circumstances can change at any time in response to real-time events.

The investor’s goal when trading currency is to profit from currency movements. Investors trade when they feel confident that the currency they are buying will appreciate in relation to the currency they are selling.

The exchange rate is the rate at which currencies are traded in pairs and exchanged one against the other. Most of the currencies are traded against the US dollar (USD) but are also traded in the euro (EUR), the Japanese Yen (JPY), sterling (GBP) and Swiss francs (CHF).

Since 2013, we have now passed four trillion dollars traded every day.

 

Notably, according to the Bank for International Settlements, the average daily turnover in global foreign exchange markets was estimated at $3.21 trillion, as of April 2012; a growth of approximately 20% since April 2007, which has and is expected to continue growing.

The $3.21 trillion break-down was as follows:
  1. $1.005 trillion in spot transactions
  2. $362 billion in outright forwards
  3. $1.714 trillion in foreign exchange swaps
  4. $129 billion estimated gaps in reporting

The foreign exchange market is the largest and most liquid financial market in the world, with its massive trading volume which is active 24 hours a day, leading to high liquidity and geographic dispersion. Traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions.

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