Questrade What is Forex? | History of Forex

The value of a country's currency can change daily, just like the stock price of a publicly-traded company. Tapping into those changes – buying or selling a currency –is foreign currency trading, and it is considered to be the largest, most dynamic, and most liquid market on the planet.

There is no central physical market for currency trading.
Foreign exchange is traded in what's called an over-the-counter market.
The largest commercial banks in the world are the most active currency traders. Next come central banks, hedge funds, corporations, and dealers like Questrade, who allow the public to participate.
More than 80% of the daily volume of approximately $3 trillion USD is speculative in nature, meaning there is no physical delivery of currency between counterparties.
Due to the vast and fragmented nature of the currency market, there is no comprehensive oversight. However, some commodity trading commissions and dealers have been trying to create internationally-accepted standards in the last few years.

Hours

Because there is no central market, currencies are traded around the clock from Asia to Europe to North America and back to Asia, 24 hours a day, with a 36-hour breather over the weekend. Trading at Questrade commences at 5 p.m. EST on Sundays and goes 24 hrs a day until 5 p.m. EST on Fridays.

Currency pairs

By convention, currencies are traded in pairs. This means that whenever you buy a currency, you will be simultaneously selling another. Naturally, there are many combinations of currency pairs, but the most actively traded ones are known as the majors: the US dollar, euro, pound, yen, Swiss franc, Canadian dollar and Australian dollar. About 85% of the daily trading volume in the currency market is transacted in the majors.

The history of forex

Throughout the 20th century, a number of events conspired to create the modern currency marketplace. For retail investors -- individual forex traders -- the big change didn't occur until the late 1990s when the Internet and electronic trading platforms exploded. Through this technology, individual investors could reach market makers (their brokers) to trade with the same speed as the big players.

Today, the number of retail traders in forex continues to grow at an astonishing pace. In 2004, the Bank for International Settlements (or BIS), estimated the volume of foreign currencies traded daily was USD $1.88 trillion or approximately 50 times the dollar volume of the NYSE. An estimated 2% of that market is retail –or about USD $37 billion.

These are big numbers, and are a compelling reason for many independent active traders to consider forex as important as stocks or options markets in their trading portfolio.

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