The Forex market is a huge marketplace, accounting for the equivalent of well over $1 trillion dollars per day. With no central trading platform, the Forex market is considered to be an over the counter market because individuals are able to trade with other individuals. Because of this, traders can determine who they wish to trade with and when they wish to trade. The Forex marketplace is a global phenomenon, and as such, trading takes place 24 hours per day.
The majority of trades involve the U.S. dollar, but the Euro, the British pound, and the Japanese yen are also very popular. The dollar is an important point of reference for a few reasons. For one, it is the most widely traded currency, accounting for over 75 percent of all trading activity. It also is the currency of the world’s biggest economy: the United States. For these reasons, the central banks of other nations will oftentimes keep U.S. dollars within their reserves. About 60 percent of the world’s foreign exchange reserves are held as U.S. currency.
Still, the majority of trading that takes place on a daily basis is done based upon speculation. If you remember the four major players in the Forex market, this would include brokers, financial institutions, and, in some instances, customers. These entities trade currencies not because they need to for business, but because they want to make a profit. Speculative trading is usually done on a daily basis—the Forex equivalent of day trading. Hedge funds are another example of this. Some fund managers will make as many as 50 trades in a single day in an effort to make clients a profit.
