Foreign Exchange, or Forex for short, also known as FX trading, is to exchange one currency
for another, which means buying one currency versus selling another simultaneously. That's
why currencies are always traded in pairs. You can buy or sell currencies to profit from the
appreciation or depreciation of one against the other.
You participate in the Forex market when buying imported goods or exchanging money to travel abroad for study, tourism, business, or vacation. Besides these practical purposes, the vast majority of FX trading is undertaken online to profit from price movements.
Forex market is the largest financial market, working around the clock five days a week. Unlike stocks or commodities, there is no central exchange for fx trading. Instead, currencies are traded by the global network of banks, brokers, and dealers.
The currency market known as the Foreign Exchange has been around since ancient times, as
early as 259 BC, when converting the Roman denarii into Israeli Shekel. However, the first
modern monetary system known as the gold standard took a step in the 1870s by applying fixed
countries' currency value against the gold.
The gold standard system was replaced with the Bretton Woods agreement in the mid of 1940s that was the exchange regime using a fixed currency exchange rate against the US dollar, which was pegged in return to the price of the gold.
The Bretton Woods Agreement eventually collapsed in the early 1970s, when the US government announced the suspension of converting the US dollar to gold at a fixed rate, which ushered in the floating exchange rate system.
Today, most nations have adopted a freely floated currency, although the respective national central banks may intervene to control their currency value under financial policies.
As early as the 1990s, online trading platforms started to appear thanks to revolutionary technology development. At the same time, the deregulation of the forex market enables individuals to trade forex worldwide for the first time. Then forex market started to grow enormously, as new types of brokers' trading platforms and electronic dealing platforms extended forex trading capabilities to an increasing number of small participants worldwide.
Forex is by far the world's largest and most liquid financial market. From 539 billion dollars in 1989 to 6.6 trillion dollars in 2019, the average daily turnover in the FX market has been steadily expanding. In 2022, it is expected to be worth more than $7 trillion.
Forex has three participation levels:
Big banks, including investment and commercial banks, are the biggest FX market users. They trade for themselves and clients.
Big brokers give smaller institutions and individuals immediate market access. They handle the most daily volume.
Third, we have clients, including retail forex investors who trade or keep currencies.
Forex market is a decentralized market operating around the clock on weekdays worldwide. There are three main trading sessions considered as the Oceania-Asia session, Europe session, and North America session. As one session almost ends, another one starts. It makes the market work uninterruptedly. London, New York, Tokyo, and Sydney are four popular market centres that hold more than 60% of total daily transactions among the whole markets around the world.
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