Forex" redirects here. For the football club, see FC
Forex Braşov.
The foreign exchange market (forex, FX, or currency market)
is a form of exchange for the global decentralized trading of international
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 determines the
relative values of different currencies.[1]
The foreign exchange market assists international trade and
investment by enabling currency conversion. For example, it permits a business
in theUnited States to import goods from the European Union member states
especially Eurozone members and pay Euros, even though its income is inUnited
States dollars. It also supports direct speculation in the value of currencies,
and the carry trade, speculation based on the interest rate differential
between two currencies.[2]
In a typical foreign exchange transaction, a party purchases
a quantity of one currency by paying a quantity of another currency. The modern
foreign exchange market began forming during the 1970s after three decades of
government restrictions on foreign exchange transactions (the Bretton Woods
system of monetary management established the rules for commercial and
financial relations among the world's major industrial states after World War
II), when countries gradually switched to floating exchange rates from the
previous exchange rate regime, which remained fixed as per the Bretton Woods
system.
The foreign exchange market is unique because of
its huge
trading volume representing the largest asset class in the world leading to
high liquidity;
its
geographical dispersion;
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 and loss margins and with respect to account
size.
As such, it has been referred to as the market closest to
the ideal of perfect competition, notwithstanding currency intervention by
central banks. According to the Bank for International Settlements,[3] 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. Some firms specializing on foreign
exchange market had put the average daily turnover in excess of US$4
trillion.[4]
The $3.98 trillion break-down is as follows:
$1.490
trillion in spot transactions
$475
billion in outright forwards
$1.765
trillion in foreign exchange swaps
$43
billion currency swaps
$207
billion in options and other products