The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized over-the-counter financial market for buying and selling currencies. It is estimated that daily exchanges amounting to $3 trillion per day happen in this market that is open 24 hours a day, 5 days a week. Let us read more about this "rewarding" financial market so that all of us are on the same knowledge platform.

Established in the year 1971, the foreign exchange market is characterized by valuation of currencies at floating rates that are determined by the forces of currency demand and supply. The forex market is constituted by about 5000 trading institutions such as consumers, businesses, investors, speculators, commercial banks, investment banks, and central banks and the major trading centers located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt. Forex trading is facilitated by email, phone, and websites of forex brokers specializing in foreign exchange. The market is open for trading from 20:15 GMT on Sunday until 22:00 GMT Friday.

As of April 2010, the daily volume of forex trading was $3.98 trillion, the constituents of which are spot transactions, outright forwards, foreign exchange swaps, and estimated gaps in reporting.

Top currency traders and most traded currencies

The top currency traders, as on May 2010, measured in terms of percent of overall volume were Deutsche Bank, USB AG, Barclays Capital, Citi, Royal Bank of Scotland, JPMorgan, HSBC, Credit Suisse, Goldman Sachs, and Morgan Stanley.

The most traded currencies are the United States dollar, Euro, Japanese Yen, Pound Sterling, Australian dollar, Swiss franc, Canadian dollar, Hong Kong dollar, Swedish Krona, and New Zealand dollar.

Why forex is unique?

The foreign exchange market is unique when compared to other financial markets because of many factors such as geographical dispersion, huge trading volume, high liquidity, continuous operation, low relative profit margins, and use of leverage for improving profits margins with respect to forex account size. Every lot in forex is worth approximately $100,000 and can be availed by a forex trader through leverage, which can be termed as loans for trading. Usually, trading lots are controllable with a leverage of 100:1, which means that $100 will allow you to control a currency exchange of $10,000.

Factors determining forex rates

The factors determining foreign exchange rates are international parity conditions, balance of payments model, asset market model, market psychology, economic policy disseminated by government agencies and central banks, government budget deficits or surpluses, inflation levels and trends, economic growth and health, and internal, regional, and international political conditions to name a few.

Is forex all safe?

Though forex is a relatively safe market when compared to other financial markets, a high degree of discipline complemented with expertise and qualified knowledge is still the deciding factor for forex traders expecting to optimize profits and reduce losses in the short as well as the long run.

It is always recommended that potential traders should seek qualified forex training before venturing into this rewarding world. Existing and new entrants to this world must try their level best to upgrade their knowledge so that they stay with the times and do not miss out on lucrative opportunities.