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History of The Foreign Exchange Market


The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world with a daily average turnover of US$1.9 trillion -- 30 times larger than the combined volume of all U.S. equity markets.


"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Great British Pound (USD/GBP).


There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.


For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.


A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial centre, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.


The FX market is considered an Over the Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.


Currency markets are also one of the most volatile markets. One of the reasons for this is the sheer size of the market, and its sensitivity to so many variables. Whereas a company trading on the stock market is susceptible to its own news and the health of the economy where it does business, there are many more variables that can affect currencies. International politics, enthusiasm for one currency that causes another to weaken even though there's no apparent reason for it, weather, and war — there is a virtually endless list.


Most traders buying and selling currency in the foreign exchange market are doing so on a speculative basis. Like stock market traders, they buy currencies they think will get stronger and sell the ones they think will get weaker. 4NX Ltd does NOT engage in speculation of this kind, we only buy and sell foreign currency strictly based on our transactional needs. Most of this speculative activity is undertaken by investment companies, banks and brokerages. The high volume of currency trading means rates change every 4.8 seconds. Companies that buy and sell foreign currency as a part of their normal business activities make up a very small percentage of currency trading.