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Forex (Foreign Exchange Market) is an inter-bank market that took shape in 1971 when global trade shifted from fixed exchange rates to floating ones. This is a set of transactions among forex market agents involving exchange of specified sums of money in a currency unit of any given nation for currency of another nation at an agreed rate as of any specified date. During exchange, the exchange rate of one currency to another currency is determined simply: by supply and demand – exchange to which both parties agree. The Forex market is a worldwide decentralized over-the-counter financial market for the trading of currencies.
The scope of transactions in the global currency market is constantly growing, which is due to development of international trade and abolition of currency restrictions in many nations. According to the Bank for International Settlements, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, as of April 2007. $3.21 trillion is accounted for in the world's main financial markets. Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York City accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives. Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. Spot, Forward, Future, Swap and Options are a few instruments traded in the forex market.
The FOREX market is a 24-hour market that does not depend on certain business hours of foreign exchanges; trade takes place among banks located in different corners of the globe. Exchange rates àre so flexible that significant changes happen quite frequently, which enables to make several transactions every day. If we have an elaborate and reliable trade technology we can make a business, which no other business can match by efficiency. It is not without reason that the pivotal banks buy expensive electronic equipment and maintain the staffs of hundreds of traders operating in different sectors of the FOREX market.
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