What is the Foreign Exchange market?

This is a question that seems to be asked by more and more people these days as many of the popular business news channel begin to refer and talk about the different world currencies and their values versus the US dollar. The reason for the increased references about the US dollar is because the US dollar is trading at a historic lows never seen since the dollar began trading. Gold is trading near $750.00 also near its record high and oil is trading at its record highs.

So what is the Foreign Exchange Market better known as and referred to as the Forex market. The Forex market is the largest market in the world with daily volume of over 2.1 trillion making it the largest market in the world and probably the least understood as most over looked market. Unlike other financial markets the Forex market has no physical location or central exchange. It is an over the counter market where buyers and sellers including banks, corporations, and private investors conduct business.

Currency trading takes place in financial trading centers all over the world, including New York, London, and Tokyo creating one cohesive, international market. The huge number and diversity of players involved make it difficult for even governments to control the direction of the market. The unmatched liquidity and around the clock global activity make the Forex market very attractive from large multi billion dollar Hedge Funds to small individual speculators. Traditionally the Forex market was only available to larger entities trading currencies for commercial and investment purposes through banks.

The backbone of the Forex market consists of a global network of dealers. They are mainly commercial banks that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets.