Foreign exchange, FX or Forex for short, is a professional operation in which currency of one country is converted to that of another to discharge international debtor-creditor relationship. This market is gaining more and more attention in recent years and has developed into the world’s largest financial market with an average turnover of over USD3 trillion per day. The figure is several times of the trading volume of global stock market. Because of time difference and different geographical positions of global financial centers, from Sydney to Tokyo, London and New York, the Asian, European and American markets make a 24-hour running global foreign exchange market. The market never stops trading except on Saturdays, Sundays or major holidays.
Unlike stock trading and futures trading, which are through centralized exchanges, FX/Forex is made via electronic network without a unified market. However, the network of foreign exchange trading is global. The market is connected by a commonly accepted method and advanced information system. It is a market via OTC where dealings can be done as long as there are buyers and sellers, thus breaking through the limitation of space and time.
FX Market Participants
Participants in the inter-bank FX market are mostly large banks and brokers. They trade by means of cross quotation and free conclusion of business. Main players in the customer FX market, on the other hand, are enterprise legal persons, institutional investors and hedge funds.
Factors Affecting FX Fluctuation
As shown in the Figure, there exist many factors, mainly political and economic factors, which affect FX fluctuation. Sometimes, even a breaking news or a speech by some national personage is likely to cause FX fluctuation.