Unlike the Futures market, there is no central exchange that
creates and clears Forex contracts. Instead Forex transactions are
described as over the counter products (you may see this
abbreviated as OTC products) with the main trading centres
and Forex
Brokers being found in London, New York, Singapore,
Tokyo and Hong Kong. Unlike other asset classes,
currency trading is a 24 hour business with the market
opening in Asia on Sunday evening (UK time) and trading through to
the close of the US market at 9.30pm (UK time). This has led to an
explosion of trading volumes with the market doubling in size since
the turn of this century.
Forex
trading allows traders to take a view about the
relative strength or weakness of a currency when compared to
another. For example one of the most popular quoted currency pairs
is the pound versus the dollar. The price of this currency pair
shows how many US Dollars will be given for one British Pound and
traders will buy or sell this exchange rate depending on their
opinion of the relative strengths or weaknesses of the US and
British economies.
A buyer of British Pounds versus the US Dollar will profit if the
exchange rates rises (a pound is worth more dollars) whereas a
seller will gain if the exchange rate falls (a pound is worth fewer
dollars).
Whilst there are many Forex currency pairs available 85% of all
transactions in the retail market are made on the Major
currencies which are the US Dollar, Euro, British Pound, Yen, Swiss
Franc, Australian and Canadian Dollar.