The Currency market is the largest financial market in the world with an estimated daily turnover of $1.9 trillion. This tremendous turnover is 10 times larger than the combined turnover of all U.S. financial markets daily. In addition to size the currency market offers other unique advantages:
· 24-hour trading Sunday thru Friday
· Very high liquidity
· Low transaction cost
Unlike the equities and futures markets, the spot currency markets (also known as the “foreign exchange market and forex market”) does not have a fixed exchange.
It is primarily traded through a network of banks, financial institutions and private individuals that comprise the spot currency market.
Foreign Exchange simply means the buying of one currency and the selling of another simultaneously. Currencies of the world are on a floating exchange rate and always trade in pairs.
For example: Euro/Dollar or Dollar/Yen.
Almost 90 percent of all transactions involve trading of the U.S. Dollar against the six other major currencies. These are the Euro Dollar, British Pound Sterling, Japanese Yen, Swiss Franc, Australian and Canadian dollar.
The currency market is truly global and operates 24 hours a day Sunday through Friday. Daily trading commences in New Zealand and follows the sun to Sydney then Turkey and through Asia to London and Europe and then to New York, Chicago and Los Angeles before starting again in New Zealand.
In the past the spot currency market was not available to average investors due to the large minimum transaction sizes and stringent financial requirements. Banks, major currency dealers and the occasional huge investor used to be the principal dealers. Only they were able to take advantage of the currency markets fantastic liquidity and the strong trending nature of many of the world’s major currencies. In today’s market currency brokers are able break down the larger sized units and offer the average traders the opportunity to buy or sell any number of these smaller units.