FOREX Revolution…

According to the Bank for International Settlements, as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007.

The Foreign Exchange market (Forex, FX, or Currency Market) has become a global, worldwide decentralized over-the-counter financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends.

The foreign exchange market began forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system. In those days only banks and wealthy people could benefit from the currency exchange. Due to modern day technology and leverage it has become available to the retail market.

The foreign exchange market is unique & attractive because of:

  • its huge trading volumes, leading to high liquidity;
  • its geographical dispersion; you can trade anywhere you have internet connection
  • its continuous operation: 24 hours a day except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday;
  • 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 margins with respect to account size.

In regards to the Forex market participants, unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest commercial banks and securities dealers. Within the inter-bank market, spreads, which are the difference between the bid and

ask prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask prices widens (for example from 0-1 pip to 1-2 pips for currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread.

The levels of access that make up the foreign exchange market are determined by the size of the „line“ (the amount of money with which they are trading). The top-tier interbank market accounts for 53% of all transactions. After that there are usually smaller banks, followed by large multinational corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX market makers. Central banks also participate in the foreign exchange market to align currencies to their economic needs.

(Partially Republished Article Written by -and Courtesy of-  Mr Jaron Veelo | GemCapital Tower, 13 Acropolis Ave & 2 Thoukididou Street, Nicosia 2006 Cyprus | )

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