A:

There is no central location of the foreign exchange market, often referred to as the forex (FX) market. Transactions in the FX market take place in many different forms, 24 hours a day, through different channels all over the globe; existing wherever one currency is exchanged for another.

The forex market is situated within the following areas:

  • retail forex brokers
  • central banks
  • commercial businesses
  • banks

Retail Forex Brokers
These brokers offer speculative trading to the individual retail trader. This area of the forex market is very small compared to the total volume of currency exchanged worldwide.

Central Banks
By purchasing and selling currencies, central banks try to control their money supply, interest rates and inflation. Whether official or not, nations often have target exchange rates for their currencies, and a nation's central bank can often use their reserves of national and foreign currency to try and stabilize the market for their currency.

Commercial Businesses
Whenever a company has to purchase from, or sell to a company in a foreign nation, a foreign exchange transaction is likely to occur. For example, a U.S. based company may need to purchase Euros to pay an invoice to a French company; or the French company may have to purchase U.S. dollars to pay a U.S based invoice. In both of these cases a foreign exchange transaction needs to occur. Companies that deal with foreign customers or suppliers often take this one step further, and purchase or sell currencies as a hedge against future exchange rate movement. By locking in today's exchange rates, companies can take exchange rate risk out of the equation.

Interbank Market
The interbank market makes up the largest portion of the forex market, and is inclusive of the above areas of trading. Customers often turn to the banks to intermediate their foreign exchange transactions, and banks often trade their own accounts as well.

There is no central location that forex trading occurs in. For this reason, there is no central body controlling prices and actions of many players. This is a new and lucrative area for speculation, but investors must heed the risks that are taken when entering it.

To learn more, read Getting Into The Forex Market and our Forex Market Tutorial.

RELATED FAQS
  1. In the forex market, how is the closing price of a currency pair determined?

    The foreign exchange market, or forex, is the market in which the currencies of the world are traded by governments, banks, ... Read Answer >>
  2. How does the foreign-exchange market trade 24 hours a day?

    The forex market is the largest financial market in the world, trading around $1.5 trillion each day. Trading in the forex ... Read Answer >>
  3. What am I buying and selling in the forex market?

    The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
  4. What methods can be used to fund a forex account?

    The forex market is where currencies from around the world are traded. In the past, currency trading was limited to certain ... Read Answer >>
Related Articles
  1. Trading

    The Forex Market: Who Trades Currency And Why

    The forex market has a lot of unique attributes that may come as a surprise for new traders.
  2. Trading

    Why It's Important To Regulate Foreign Exchange

    In an increasingly globalized economy, the significance of the foreign exchange marketplace cannot be underestimated.
  3. Trading

    Forex Broker Guide

    A Guide To Choosing a Forex Broker
  4. Trading

    Forex Trading: A Beginner's Guide

    Learn about the forex market and some beginner trading strategies to get started.
  5. Trading

    Top 5 Forex Risks Traders Should Consider

    With a long list of risks, losses associated with foreign exchange trading may be greater than initially expected. Here are the top 5 forex risks to avoid.
  6. Trading

    Working In Finance: 5 Forex Careers

    The forex markets can be both exciting and lucrative. Find out what jobs exist in this space and how to get them.
RELATED TERMS
  1. Forex Market

    The market in which participants are able to buy, sell, exchange ...
  2. Foreign Exchange Market

    The market in which participants are able to buy, sell, exchange ...
  3. Forex Spot Rate

    The current exchange rate at which a currency pair can be bought ...
  4. Forex Broker

    Firms that provide currency traders with access to a trading ...
  5. Forex Market Hours

    The hours during which forex market participants are able to ...
  6. International Currency Markets

    The market in which participants from around the world are able ...
Hot Definitions
  1. Financial Statements

    Records that outline the financial activities of a business, an individual or any other entity. Financial statements are ...
  2. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  3. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  4. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  5. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  6. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
Trading Center