Forex trading worldwide

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Forex trading is the largest financial market in the world

The Foreign exchange market or the Forex market is the financial market where the currencies are traded. The present day Forex markets were started to form during 1970s. This is the time when most of the countries switched from the previous exchange rate system to the floating exchange rate system. The Forex market is spread all over the world and financial centers of different countries function as the anchors of Forex trading that involves different categories of buyers and sellers. The Forex market is open round the clock throughout the world except the weekend when the Forex markets remain closed. The global Forex market helps the international trade and commerce as well as allows investors and businesses to convert one currency to the other. In a Forex trading investors buy one currency by paying in another currency.

There are number of factors that have made it a unique market and these are the reasons that have made Forex market so popular amongst the investors all over the world. It is because of these factors that have made the Forex market closest to the ideal perfect competition.

• The vast geographical dispersion of the Forex market.

• The Forex market is open 24 hours a day and throughout the weekdays.

• The liquidity of the trading volume.

• The highest leverage in comparison with other financial markets.

 

As per the data published by the Bank for International Settlements, the average daily turnover of the global Forex market is about US$ 3.98 trillion in which the main financial markets of the world contribute about US$ 3.21 trillion of trade. This whopping figure can be broken down in different segments as follows,

• About US$ 1.005 trillion is traded in spot transactions

• About US$ 362 billion is traded in outright forwards

• Foreign exchange swaps accounts for about US$ 1.714 trillion

• About US$ 129 billion is estimated for gaps in reporting

 

This figures clearly show that why Forex market is considered to be the largest financial market in the world. The Forex market grew more than 41% during the period of 2007 and 2008. With the total market of US$ 3.98 trillion London alone accounts for a trade of US$1.36 trillion, and this makes London the Forex capital of the World. New York and Tokyo is the respectively the second and third largest market for Forex trading all over the world.

The significant traders of the Forex market are central banks of different countries, large corporate banks, corporations, government of different countries, financial institutions and of course currency speculators and Forex brokers. The Forex trading market is divided into different levels. At the top level of the Forex markets there are inter bank trades where the traders are central banks, largest commercial banks. A significant portion of the global Foreign exchange trading is done by these banks where trades are done at large volumes. Then there are commercial companies who partake in the Forex trade primarily for their requirement of foreign exchange. Then of course there are central banks of different countries that play a critical role at the global Forex market control the market to a great extent.

It is the Chicago Mercantile Exchange where for the first time exchange traded FX futures were traded during the time of 1972. Since the volume of the future contracts trade has grown significantly and now there are so many developed countries have started future trading in Forex trading. In the recent years the Forex future market has shown a good rise in the trading volume. At present the future trading accounts as much as 7% of the total Forex trading globally.

There are mainly three factors that control the Forex trading all over the world. The demand of the currencies is controlled by the economic, political scenario of the respective countries. Another factor that hugely influences the Forex market is the market psychology of the buyers that is instrumental for the demand of certain currencies in the global Forex market resulting in the rise of the currency in respect of other currencies. In short there are so many factors that contribute to the Forex market globally and these are factors that have made the Forex market so dynamic.

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