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Introduction to Foreign Exchange
The foreign exchange (Forex) market is the largest and most liquid financial market in the world, with average daily trading volumes exceeding 5 trillion US dollars. This expansive market operates 24 hours a day, five days a week, across major financial hubs including London, New York, Tokyo, and Sydney, facilitating currency trading among governments, central banks, corporations, financial institutions, and individual traders.
Due to its high liquidity and accessibility, Forex attracts a broad spectrum of participants—from multinational corporations managing foreign exchange risk to retail traders aiming to profit from short-term price movements. However, the market’s volatility and use of leverage also introduce significant risks, making informed strategies and sound risk management essential for success.
Most Influential Players in the Foreign Exchange Market
The most influential participants in the Forex market are central banks, commercial banks, and institutional investors. Together, banks and institutional investors account for approximately 50% of daily turnover. Exporters, importers, and other multinational corporations contribute around 10% of daily turnover.
□ Read more: » The Basics of Forex Investing | » Basics of Forex Trading
The History of the World’s Exchange Rates
The 5th century B.C. silver drachma of Athens was likely the first currency accepted beyond its issuing state. Since then, gold has been the only true global currency. The Greek drachma was followed by the Roman gold Aureus and silver Denarius, which remained in use until the early 4th century A.D. Afterwards, the Byzantine gold Solidus became dominant, followed by the Islamic Dinar.
In the 13th century, the Florentine Fiorino rose to prominence in the Mediterranean, succeeded by the Venetian Ducato in the 15th century. Later, the Spanish Dollar was widely used in Europe, the Americas, and the Far East, and became the first world currency by the 16th century. During the 17th century, the Dutch Guilder was the world’s leading currency. Following that period, and until World War II, the British Pound Sterling was the most widely accepted currency globally. Since WWII, the dominance of the US Dollar has been undisputed.
□ Read more: » Exchange Rates History
Forex Regulation & Investors Protection
Before opening and funding a Forex account, investors must prioritize fund safety.
Key Factors Ensuring Fund Safety
Several critical factors protect investors' capital:
(i) The broker's regulatory license
(ii) The broker's country of headquarters
(iii) The compensation scheme in case of broker insolvency
After account opening:
(iv) Protecting against internet fraud
(v) Safeguarding balances against extreme volatility (through proper position sizing and leverage management)
This article focuses on the first three factors (license, headquarters location, and insolvency protection).
The Basics of Investing in the Foreign Exchange Market & Carry Trade
The foreign exchange (Forex) market is the largest and most liquid financial market in the world, with average daily trading volumes exceeding 5 trillion US dollars. This expansive market operates 24 hours a day, five days a week, across major financial hubs including London, New York, Tokyo, and Sydney, facilitating currency trading among governments, central banks, corporations, financial institutions, and individual traders.
Forex is an over-the-counter (OTC) market where transactions are conducted electronically between participants. Its vast liquidity stems from its global scope, as currencies are continually in demand for international trade, investment, and hedging against economic risks.
Due to its high liquidity and accessibility, Forex attracts a broad spectrum of participants—from multinational corporations managing foreign exchange risk to retail traders aiming to profit from short-term price movements. However, the market’s volatility and use of leverage also introduce significant risks, making informed strategies and sound risk management essential for success.
Most Influential Players in The Foreign Exchange Market
The most influential participants in the Forex market are central banks, commercial banks, and institutional investors. Together, banks and institutional investors account for approximately 50% of daily turnover. Exporters, importers, and other multinational corporations contribute around 10% of daily turnover.
Central Banks
Central banks play a crucial role in the currency market. They possess both the tools and the incentives to influence domestic exchange rates as part of their monetary policy implementation—particularly the U.S. Federal Reserve (FED), the European Central Bank (ECB), the Bank of Japan (BoJ), the Bank of England (BoE), and the Swiss National Bank (SNB). One should never trade against these five central banks.
The History of the World’s Exchange Rates
The varied valuations of world currencies have created the need for trading and hedging against market risk. The Foreign Exchange Market serves as a global platform for exchanging different currencies. Below is a brief history of the world’s exchange rates.
Currencies that Dominated the World
The 5th century B.C. silver drachma of Athens was likely the first currency accepted beyond its issuing state. Since then, gold has been the only true global currency. The Greek drachma was followed by the Roman gold Aureus and silver Denarius, which remained in use until the early 4th century A.D. Afterwards, the Byzantine gold Solidus became dominant, followed by the Islamic Dinar. In the 13th century, the Florentine Fiorino rose to prominence in the Mediterranean, succeeded by the Venetian Ducato in the 15th century. Later, the Spanish Dollar was widely used in Europe, the Americas, and the Far East, and became the first world currency by the 16th century. During the 17th century, the Dutch Guilder was the world’s leading currency. Following that period, and until World War II, the British Pound Sterling was the most widely accepted currency globally. Since WWII, the dominance of the US Dollar has been undisputed.
The Basics of Forex Trading
The Foreign Exchange (Forex or FX) is the global marketplace where governments, banks, corporations, and traders exchange currencies.
What is the Foreign Exchange or Forex market?
The currency market is the world’s largest and most liquid financial market, with an average daily turnover exceeding 7 trillion US dollars.
These are some facts regarding the Forex Market:
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The Forex market operates 24 hours a day, five days a week.
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Major currency trading centers include London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, and Singapore.
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Currency trading is conducted via the ECN (Electronic Communication Network).
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The most traded currency is the US Dollar, and the most traded currency pair is EUR/USD.
Subcategories
Trading Rules
Learn essential Forex trading rules and practical tips for currency traders at Forex-Investors.com.
