What is Forex?

The foreign exchange (currency, or Forex, or FX) market — an international market, where one currency is traded for another – evolved into its current state in 1971 and, thus, has been operating for more than 30 years. Today, the Forex market is by far the largest financial market in the world in terms of trading volumes – up to US$3 trillion each day. By way of example: the average daily turnover in the global stock market does not exceed US$300 billion. Who are the major participants in the Forex market?


Commercial and industrial companies that conduct international trade and are, therefore, obliged to convert various currencies, act as key participants in the Forex market. Their Forex trades are strictly business-oriented. Thus, given the fact that they account for the bulk of Forex market participants and that the foreign exchange market is characterized by colossal trading volumes, the Forex market is fairly stable – more stable, than both its commodity and stock counterparts.


Banks and other financial institutions – also active Forex market participants – pursue other goals. The lion’s share of their profits is reaped from currency quotations. They are not very much concerned about trends – they are more interested in turnover. To this end, they need to maintain market stability, which also mitigates risks associated with uncontrollable market fluctuations.


Financial speculators are the last significant group of Forex market participants. Individual players and legal entities trade on the Forex market in order to generate profits from differences in exchange rates, which are defined – either directly or indirectly – by political, economic, and administrative decisions made by regulatory bodies of the world’s leading economies, as well as by developments in various sectors of the global economy and by other less significant events. For these market participants, Forex trading is merely another means of speculative trading, similar to that found on stock and commodity markets.