Tag: Foreign Exchange Market

A global decentralised or over-the-counter market for trading currencies is known as the foreign exchange market. For every currency, exchange rates are set by this market. It covers all facets of purchasing, selling, and exchanging currencies at established or current rates. It is by far the biggest market in the world in terms of trade volume, followed by the credit market.

The bigger international banks are the key players in this industry. With the exception of weekends, financial centres all over the world serve as the focal points for trade between a variety of different types of buyers and sellers. Due to the fact that currencies are usually traded in pairs, the foreign exchange market establishes a currency’s relative worth rather than its absolute value by establishing the market price of one currency when purchased with another. Ex: X CAD, CHF, JPY, etc. are equal to 1 USD.

Through financial institutions, the foreign exchange market functions on various levels. Behind the scenes, banks work with a smaller group of financial institutions called “dealers” who do a significant amount of foreign exchange trading. Although a small number of insurance companies and other types of financial institutions are also active, this unregulated market is commonly referred to as the “interbank market” because the majority of foreign currency traders are banks. Hundreds of millions of dollars can change hands in very sizable trades between foreign exchange brokers. Forex has few (if any) supervisory entities overseeing its operations since there is a sovereignty issue when dealing with two currencies.