The foreign exchange or forex market is the world's largest financial market. It is a non-stop cash market where currencies of nations are traded off-exchange through brokers.
It is estimated that, on average, $5.3 trillion is traded each day in the world’s forex markets. The vast majority of forex trading does not occur on any one centralised or organised exchange but through brokers on the interbank currency market. The interbank currency market is a 24-hour market that follows the Sun around the world, opening in Australia and closing in the US. Whilst the market exists for organisations with exchange risk, speculators also participate in the forex markets in an effort to profit from their expectations about exchange rate movements.
In the early days of its establishment, the forex market was used by institutional investors that transacted large amounts for commercial and investment purposes. Today, however, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all tap the forex market to pay for goods and services, transact in financial assets, and speculate to reduce the risk of currency movements by hedging their exposure.
The forex market today is no longer solely for the institutional investor. The last 10 years have seen an increase in non-institutional traders accessing the forex market to capitalise on the benefits it offers. Trading platforms such as MetaQuotes MetaTrader have been developed specifically for the private investor, whilst educational materials have become more readily available. Support services via forums have also become increasingly popular. In addition, private investors who no longer wish to trade themselves can procure the services of professional money managers, who will take over via managed accounts.
In brief, the main advantages of forex trading today for the private investor and shorter-term trader are: