The foreign exchange currency or commonly referred as forex or FX market, established in 1971, is the place where banks, investors and speculators exchange one currency to another. The Forex market is not centralized, like in currency futures or stock markets. The FX market is considered an Over The Counter (OTC) or ‘Interbank’ market, trading occurs over computers and telephones at thousands of locations worldwide.

Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. RPP

 Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York.

It is the largest and most liquid financial market in the world. The average daily volume is US$ 3.2 trillion in December 2007 by the Bank for International Settlement. Average daily turnover has grown by an unprecedented 69% since April 2004. More than half of the increase in turnover can be accounted for by the growth in foreign exchange swaps, which rose 80%. Forward contracts also picked up significantly to 73%. In contrast, turnover in spot markets increased by 59%, lower than the growth in turnover in the previous three-year period.

The four most traded currencies are the US dollar, the euro, the yen and sterling, but today are involved in 8 percentage points fewer foreign exchange transactions than they were in 2004.  The currency composition of turnover has become more diversified. The share of the four largest currencies fell, although the US dollar/euro continued to be the most traded currency pair. The most notable increases in share were for the Hong Kong dollar, which has benefited from being associated with the economic expansion of China, and the New Zealand dollar. The share of emerging market currencies in total turnover has increased, to almost 20% in April 2007. The largest foreign exchange activity retains the spot exchange (i.e.., immediate) between the major currencies. Among the currencies with lower levels of turnover, the Hong Kong dollar, the New Zealand dollar, the Swiss franc, the Norwegian krone, the Australian dollar, the Swedish krona, the Polish zloty, the Chinese renminbi and the Indian rupee have all experienced a significant increase in their share of aggregate turnover at current exchange rates. The Forex market is an opened 24 hours a day market where the primary market for currencies is the 24-hour Interbank market. Until now, professional traders from major international commercial and investment banks have dominated the FX market. Other market participants range from large multinational corporations, global money managers, registered dealers, international money brokers, and futures and options traders, to private speculators.

There are three main reasons to participate in the FX market. One is to facilitate an actual transaction, whereby international corporations convert profits made in foreign currencies into their domestic currency. Corporate treasurers and money managers also enter the FX market in order to hedge against unwanted exposure to future price movements in the currency market. The third and more popular reason is speculation for profit. In fact, today it is estimated that less than 5% of all trading on the FX market is actually facilitating a true commercial transaction.