The
Foreign Exchange market, also referred to as the "Forex" or "FX" market
is the largest financial market in the world, with a daily
average turnover of well over US$1 trillion -- 30 times larger
than the combined volume of all U.S. equity markets.
"Foreign Exchange" is the simultaneous buying
of one currency and selling of another. Currencies are traded
in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese
Yen (USD/JPY).
There are two reasons to buy and sell currencies. About
5% of daily turnover is from companies and governments that
buy or sell products and services in a foreign country or
must convert profits made in foreign currencies into their
dom estic currency. The other 95% is trading for profit,
or speculation.
For speculators, the best trading opportunities are with
the most commonly traded (and therefore most liquid) currencies,
called "the Majors." Today, more than 85% of all
daily transactions involve trading of the Majors, which include
the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc,
Canadian Dollar and Australian Dollar.
A true 24-hour market, Forex trading begins each day in
Sydney, and moves around the globe as the business day begins
in each financial center, first to Tokyo, London, and New
York. Unlike any other financial market, investors can respond
to currency fluctuations caused by economic, social and political
events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank'
market, due to the fact that transactions are conducted between
two counterparts over the telephone or via an electronic network.
Trading is not centralized on an exchange, as with the stock
and futures markets.
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