The foreign exchange market most often called the forex market, or simply the FX market is the most traded financial market in the world. We like to think of the forex market as the “Big Kahuna” of financial markets.
The forex market is the crossroads for international capital, the intersection through which global commercial and investment flows have to move. International trade flows, such as when a Swiss electronics company purchases Japanese-made components, were the original basis for the development of the forex markets.
Today, however, global financial and investment flows dominate trade as the primary non-speculative source of forex market volume.
Whether it’s an Australian pension fund investing in U.S. Treasury bonds, or a British insurer allocating assets to the Japanese equity market, or a German conglomerate purchasing a Canadian manufacturing facility, each cross-border transaction passes through the foreign exchange market at some stage.
More than anything else, the forex market is a trader’s market. It’s a market that’s open around the clock six days a week, enabling traders to act on news and events as they happen. It’s a market where half-billion-dollar trades can be executed in a matter of seconds and may not even move prices noticeably.
Try buying or selling a half billion of anything in another market and see how prices react.
Average daily currency trading volumes exceed $2 trillion per day. That’s a mind-boggling number, isn’t it? $2,000,000,000,000 — that’s a lot of zeros, no matter how you slice it. To give you some perspective on that size, it’s about 10 to 15 times the size of daily trading volume on all the world’s stock markets combined.
