The foreign exchange market is where currencies are traded. It is the only continuous and non-stop commercial market in the world. In the past, the forex market was dominated by large corporations, institutions and banks, which acted on behalf of clients. But it has become more retail-oriented in recent years, and traders and investors of all sizes are starting to get involved.
An interesting aspect of world forex markets
- is that there are no physical buildings that function as trading venues for the markets. Instead, it is a series of connections made through trading terminals and computer networks.
- Participants in this market are institutions, investment banks, commercial banks, and retail investors.
The foreign exchange market is more opaque than other financial markets. Coins are traded on OTC markets, where disclosure is not mandatory. Large liquidity pools of institutional firms are a dominant feature of the market. One might assume that a country’s economic criteria should be the most important criterion for determining its price. But that is not the case. A 2019 survey found that the motivations of large financial institutions played the most important role in determining currency rates.
When people refer to the forex market, they are usually referring to the spot market. The forward and futures markets tend to be more popular with companies that need to hedge their foreign exchange risk up to a specific date in the future.