What is the Forex market?

The foreign exchange market (Forex, FX, or currency market) is a global decentralized market for the trading of currencies. In terms of volume of trading, it is by far the largest market in the world with the largest international banks being the main participants. Financial centres around the world serve as the anchors for trading between a wide range of multiple types of buyers and sellers 24/5. The foreign exchange market determines the relative values of different currencies.

Working through financial institutions, the market operates on several levels. Behind the scenes, banks turn to a smaller number of financial firms known as “dealers/brokers” who are actively involved in large-scale foreign exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the “interbank market”, although a few insurance companies and other kinds of financial firms are also involved. Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars. Because of the sovereign risk that arises when two national currencies are involved, Forex has little (if any) supervisory entity regulating its actions.