Forex > a booming market for private investors and traders

The foreign exchange market (forex market or, in English or Foreign Exchange Forex or FX) market refers to the exchange of currencies worldwide. It is here that banks and other institutions can achieve their buying and selling foreign currencies. Forex transactions (as with any financial market) imply together two parts: one to purchase a quantity of money in exchange for payment of an amount of the other party. The foreign exchange market as we know it today began in the 1970s, when countries around the world have gradually switched to a floating exchange rate, abandoning the fixed exchange rate as defined by the Bretton Woods system until ‘in 1971.

Currently, the foreign exchange market is one of the largest financial markets and most liquid in the world, and includes trading between large banks, central banks, traders, corporations, governments and other institutions. The average daily volume on the international currency market is growing continuously. The daily volumes were estimated at over U.S. $ 3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market continued to grow, and according to the Euromoney FX Poll annual volumes increased again by 41% between 2007 and 2008.

Furthermore, the purpose of foreign exchange market is to facilitate trade and investment. The need for foreign exchange arises because of the presence of multiple international currencies such as U.S. Dollar, Pound Sterling, etc., and needs to trade in these currencies. 

Market size and liquidity in the Forex 
The foreign exchange market is unique because of volumes,the extreme liquidity of the market, its geographical dispersion, its trading hours: 24 hours per day except on weekends (from 22:00 UTC on Sunday, until 22:00 UTC on Friday) variety of factors that affect exchange rates. low profit margins compared to other markets of fixed income (but profits can be high due to very large volumes) the use of financial leverage on transactions

As such, it is sometimes regarded as the market closest to the ideal market with perfect competition, with the exception of market manipulation by central banks. According to the Bank for International Settlements, average daily volume on the foreign exchange market is estimated at $ 3.98 trillion. On trading, the major financial markets accounted for $ 3.21 trillion. These 3.21 trillion dollars on the trading of major currencies market is broken down as follows: 
$ 1’005 billion in spot transactions (immediate delivery) 
$ 362 billion in options (future delivery) 
$ 1’714 foreign exchange swaps 
Not estimated $ 129 billion 
Several other developed countries also permit the trading of derivatives on the Forex (currency contracts like futures and options on currency futures). Most emerging markets do not trade on the Forex derivatives because of controls on capital account.However, some emerging countries (eg Korea, South Africa, India …) have already experimented successfully trade currency futures, despite some controls on capital account. 
Foreign exchange transactions increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the increasing importance of foreign exchange as an asset class in itself and to the increase in forex management fund, and in particular hedge funds and pension funds.

The wide choice of places of Forex trading have the strong development of retail (individual traders) on the foreign exchange market. In 2006, retail trade accounted for more than 2% of the total foreign exchange volume with a daily turnover average of more than $ 50-60 billion.

The foreign exchange market is an OTC market (Over The Counter), where brokers / dealers negotiate directly with one another, there is no central market place or (e) exchange. The biggest geographic trading up the United Kingdom, mainly in London, which increased its share of total turnover in transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active nearly 80% of trading volume, according to the Euromoney FX poll 2008.

Large international banks continually provide the market both in terms of supply (purchase or bid) and demand (sales or ask). The difference (spread) between bid and ask is the difference between the sale price (“ask”) issued by a bank or market maker (market maker) and the price at which a market maker (market maker) will buy (bid). This difference is minimal for actively trade currency pairs, usually between 0-3 pips. For example, the supply / demand (bid / ask) rating for the EUR / USD 1.2200/1.2203 may be retail.The minimum trading size for most trades is usually 100,000 units of base currency, which is defined as “a lot”.

These differences (spreads) do not apply to individual customers in their banks: The quotation would be 1.2100/1.2300 for transfers, or 1.2000/1.2400 for the exchange of banknotes or travelers checks. The spreads can vary, but for the EUR / USD spread is around 3 pips. Competition can be much more aggressive for larger transactions, with spreads on major pairs variable, which may then fall below 1 pip.

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