What Is Forex?
Forex (FOReign EXchange) is the global currency market. It is a network of national and commercial banks, brokerage companies, and other economic agents engaged in purchasing and selling currency.
The foreign exchange market is the most liquid in the world. Its daily trade turnover reaches 7 trillion USD. Such volumes have become possible due to the market's global nature and online transactions.
Unlike stock markets, Forex does not have a single center within which currency trading occurs. Partly because of this, it operates around the clock (except on weekends) and without clearing breaks, which is typical for exchanges.
Forex transactions are divided into:
1. hedging;
2. trading;
3. speculative;
4. regulating (are carried out by central banks to regulate exchange rates).
With the development of international trade at the end of the 16th century, people were faced with the fact that the coins of different countries had different weights and denominations. It was decided to switch to "identical" paper money, which can be exchanged for gold in a bank. Closer to the middle of the 19th century, the concept of “exchange rate in relation to gold” appeared. Thus the gold standard was born.
In 1944, the famous Bretton Woods agreement was signed to establish the International Monetary Fund. As a result, the US dollar and the British pound became international currencies.
In 1976, the gold standard was abolished, and exchange rates began to obey the market laws of supply and demand.
Since 1990, the Forex market has become available not only for large financial institutions but also for private investors and traders. After five years, it became possible to trade in the foreign exchange market via the Internet. Thus, 1995 marked the beginning of the modern Forex era.
Market Size And Liquidity
The Bank for International Settlements is studying the volume of the world currency market. Bank officials release a Forex liquidity and trading volume report every three years.
Since 1989, daily turnover has grown by an average of 25-30% in almost every reporting period. The dynamics have remained over the past ten years.
2010 – $4 trillion in a day;
2013 – $5.3 trillion in a day;
2016 – $5.1 trillion in a day;
2019 – $6.6 trillion in a day;
2022 – $7.5 trillion in a day.