The Forex Market - Where is it?

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Forex Market

In contrast to other money markets around the world the Forex or FX market has no central location as such.

Because it's a truly global market place in currency, the Forex is not centralized on one exchange. In contrast to stock markets where the main protagonists often come face to face, Forex trading is conducted by buyers and sellers either across an electronic network such as the internet or sometimes over the telephone.

Each day trading commences in Sydney Australia and flows around the globe in step with each of the main financial centers starting their normal business day. As the Australians get their first hour of trading over, the Japanese are just kicking in before London joins the action and then finally New York.

The global 24 hour five days a week nature of the Forex market means however that it is swiftly susceptible to change. Investors, unlike their counterparts in other financial marketplaces, can react round the clock in near real time to the currency value movements caused by economic, social or political events.

It's this trait that feeds the strong swings in currency values that hallmark the Forex market: a breeze in Australia can be a gale force wind by the time it hits New York. The Forex market, then, is no place for the unwary. Even seasoned Forex traders are known to get caught out on occasion when the market shifts unexpectedly, leaving them with losses.

Generally, the most commonly traded currencies in Forex market are those of countries with stable governments, reputable banks and low inflation. In practice this means that in excess of 80 per cent of transactions each day are in the major currencies, i.e. the US dollar, the Japanese Yen, the Euro, UK Sterling, the Swiss Franc and Canadian and Australian dollars.

The currency exchange rates for these and all other currencies are driven by a number of factors and require investors to be armed with a good deal of insight, up to the minute info and an aptitude for crystal-ball gazing.

While variables such as the global economy and political climate exert an influence, the main sways tend to be interest rates, inflation and political stability. Money markets are jumpy and this is why governments often trade in the Forex market in order to affect the value of their currencies. By buying up currency or alternatively upping the supply of their currency - in similar fashion to oil producers - governments can raise or lower the price of their currency.

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This kind of intervention tends to be a short-lived quick fix approach due to the sheer scale of the Forex market. Highly volatile shifts in values simply cannot be sustained in the long term.