...The foreign exchange (currency, forex or FX) market is where currency trading takes place. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global forex and related markets is continuously growing. Traditional turnover was reported to be over US$ 3.2 trillion in April 2007 by the Bank for International Settlement. Triennial Central Bank Survey (December 2007), Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008. Annual FX poll (May 2008), Euromoney.

Market size and liquidity

The foreign exchange market is unique because of

*its trading volumes,

*the extreme liquidity of the market,

*the large number of, and variety of, traders in the market,

*its geographical dispersion,

*its long trading hours: 24 hours a day except on weekends (from 5pm EST on Sunday until 4pm EST Friday),

*the variety of factors that affect exchange rates.

*the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)

*the use of leverage

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this.This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

*$1.005 trillion in spot transactions

*$362 billion in outright forwards

*$1.714 trillion in forex swaps

*$129 billion estimated gaps in reporting

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 accounted for 16.6%, and Tokyo accounted for 6.0%.In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20). Read full entry

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