The forex market allows participants, including banks, funds, and individuals, to buy, sell or exchange currencies for both hedging and speculative purposes.
- The forex market allows participants, including banks, funds, and individuals, to buy, sell or exchange currencies for both hedging and speculative purposes.
- The forex market operates 24 hours, 5.5 days a week, and is responsible for trillions of dollars in daily trading activity.
- The forex market is made up of two levels: the interbank market and the over-the-counter (OTC) market.
Understanding the Forex Market
The foreign exchange (forex) market is the largest financial market in the world and is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is not dominated by a single market exchange, but a global network of computers and brokers from around the world. Forex brokers act as market makers as well, and may post bid and ask prices for a currency pair that differs from the most competitive bid in the market.
The forex market is made up of two levels—the interbank market and the over-the-counter (OTC) market. The interbank market is where large banks trade currencies for purposes such as hedging, balance sheet adjustments, and on behalf of clients. The OTC market, on the other hand, is where individuals trade through online platforms and brokers.
From Monday morning in Asia to Friday afternoon in New York, the forex market is a 24-hour market, meaning it does not close overnight. This differs from markets such as equities, bonds, and commodities, which all close for a period of time, generally in the New York late afternoon. However, as with most things, there are exceptions. Some emerging market currencies close for a period of time during the trading day.