Foreign Exchange

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion
The foreign exchange market is unique because of
· its trading volumes,
· the extreme liquidity of the market,
· the large number of, and variety of, traders in the market,
· its geographical dispersion,
· its long trading hours: 24 hours a day except on weekends (from 5pm EST on Sunday until 4pm EST Friday),
· the variety of factors that affect exchange rates.
· the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
· the use of leverage


Foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the BIS,[1] average daily turnover in traditional foreign exchange markets is estimated at $3.21 trillion. Daily averages in April for different years, in billions of US dollars, are presented on the chart below:
This $3.21 trillion in global foreign exchange market "traditional" turnover was broken down as follows:
· $1,005 billion in spot transactions
· $362 billion in outright forwards
· $1,714 billion in forex swaps
· $129 billion estimated gaps in reporting
In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

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Top 10 Currency Traders

Source: Euromoney FX survey[3]
Rank Name Volume
1 Deutsche Bank 21.70%
2 UBS AG 14.85%
3 Citi 9.00%
4 Royal Bank of Scotland 8.90%
5 Barclays Capital 8.80%
6 Bank of America 5.29%
7 HSBC 4.36%
8 Goldman Sachs 4.14%
9 JPMorgan 3.33%
10 Morgan Stanley 2.86%

Market participants

Bond market
Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
High-yield debt
Stock market
Stock
Preferred stock
Common stock
Registered share
Voting share
Stock exchange
Foreign exchange market
Derivatives market
Credit derivative
Hybrid security
Options
Futures
Forwards
Swaps
Other Markets
Commodity market
Money market
OTC market
Real estate market
Spot market

Finance series
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
v • d • e

Banks of forex

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Commercial companies

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.