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. How do you Fund a Forex Account?

    Global currencies are traded on the forex market. Here's how to tap in. Read Answer >>
Related Articles
  1. Trading

    Why It's Important To Regulate Foreign Exchange

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

    Forex Broker Guide

    A Guide To Choosing a Forex Broker
  3. Trading

    The Pros & Cons Of A Forex Trading Career

    Trading foreign currencies can be lucrative, but there are many risks. Investopedia explores the pros and cons of forex trading as a career choice.
  4. Trading

    How Forex Brokers Make Money

    Forex brokers set their prices based on commission, spread, or a combination of both. Traders have to be cautious in the thinly regulated forex market.
  5. Trading

    How To Trade Forex Right Now

    With the expected continued world volatility in the near future, there is a lot of money to be made in the forex market. How can you make the most of it?
  6. Trading

    How Equities Affect The FX Market

    We look at how you can predict a currency movement by studying the stock market.
RELATED TERMS
  1. Forex Market

    The forex market is the market in which participants including ...
  2. Forex Broker

    A forex broker is a service firm that offers clients the ability ...
  3. Forex Spot Rate

    The forex spot rate is the most commonly quoted forex rate in ...
  4. International Currency Markets

    The market in which participants from around the world are able ...
  5. Online Currency Exchange

    An online system for exchanging one country's currency for another. ...
  6. China's State Administration Of Foreign Exchange (SAFE)

    China's foreign exchange regulatory agency, which functions as ...
Hot Definitions
  1. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  2. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  3. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  4. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
  5. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  6. Solvency

    The ability of a company to meet its long-term financial obligations. Solvency is essential to staying in business, but a ...
Trading Center