Foreign Exchange Trading

In today's ever changing financial markets, the demand and supply for a particular currency, or its relative value, is the driving factor in determining exchange rates. Decreasing obstacles and increasing opportunities, such as the dramatic growth of the Asian and Latin American economies have created new opportunities for investors.

Regularly reported economic figures around the world, such as inflation or unemployment levels, as well as unexpected news, such as natural disasters or political instability, alters the desirability of holding a particular currency, thus influencing international supply and demand for that currency. The U.S. Dollar, therefore, fluctuates constantly against the currencies of the rest of the world. The current web of international trade and the resultant fluctuations in exchange rates have created the world's largest market---the foreign exchange market, a market whose vast size makes it the most efficient, fairest, and liquid of all markets.

The foreign exchange market is a cash interbank or interdealer market. Foreign exchange, however, is not a "market" in the traditional sense since there is no centralized location for trading activity. Trading occurs over the telephone and through computer terminals at thousands of locations worldwide. The direct interbank market consists of dealers with currency settlement capabilities trading as principals. It is this dealer segment of the market that is responsible for generating a large portion of the overall foreign exchange volumes. Trading between dealers creates the largest turnover in the market, making foreign exchange the most liquid of all markets.

Trading approximately $1.5 trillion every day, the foreign exchange market is the largest financial market in the world. Traditionally, the foreign exchange market has only been available to banks, money managers, and large financial institutions. Over the years, these institutions, including the U.S. Federal Reserve Bank, have realized large gains via currency trading.

This growing market is now linked to a worldwide network of currency traders, including banks, central banks, brokers, and customers, such as importers and exporters. Today, the foreign exchange market offers opportunities for profit not only to banks and institutions, but to individual investors as well.