FOREX OVERVIEW

What is Currency Exchange?
Currency exchange is the trading of one currency against another at a set price or rate, called an exchange rate. Currency exchange is synonymous with foreign exchange and is often referred to using the acronyms Forex or FX.
The FX Market
In terms of trading volume, daily FX turnover exceeds $1.5 trillion US dollars (source: Bank of International Settlements). This makes the FX market the world's largest, most efficient market, dwarfing both the US bond and equity markets. The New York Stock Exchange, for example, has a daily trading volume of approximately $30 billion. In turn, the FX market is by far the most liquid market in the world today. Due to the sheer size of the FX market, it is virtually impossible for individuals or companies to impact exchange rates. In fact, even central banks and governments find it increasingly difficult to affect the exchange rates of the most liquid currencies, such as the US dollar, Japanese Yen, Euro, Swiss Franc, Canadian Dollar or Australian Dollar.
The FX market was established in 1971 when floating exchange rates began to materialize. It is an inter-bank or inter-dealer market based on the vast network of hundreds of major banks across the globe. Additionally, it is an Over-The-Counter market (OTC), meaning that transactions are conducted between any counter parties that agree to trade via the telephone or an electronic network. The FX market is unique in that it has no fixed location or centralized exchange, as do many stock markets including the NYSE, ASE and CME. Dealers often advertise, negotiate and transact based upon exchange rates obtained directly or via distribution networks, such as Reuters or Bridge.
Typically, trades of $1 million and above constitute the institutional marketplace. Trades below this $1 million threshold constitute the retail marketplace.
The major dealing centers today are: London (with over 50% of the market), followed by New York, Tokyo, Zurich, Frankfurt, Hong Kong and Singapore, Paris and Sydney.
The FX market is a true 24-hour market, 5 days a week. With dealers in every major time zone. Trading begins Monday morning in Sydney (which corresponds to 7 PM EST, Sunday) and then moves around the globe through the various trading centers until the market closes at 4:30 EST in New York.
Today, over 85% of all FX transactions involve seven major currencies: the US Dollar (USD), Japanese Yen (JPY), Euro (EUR), Swiss Franc (CHF), British Pound (GBP), Canadian Dollar (CAD), and Australian Dollar (AUD). In the FX market, currencies are primarily traded against the US dollar. This means that most exchange rates are quoted with the US Dollar as the base or first currency quoted in a pair (i.e. USD/JPY). Exceptions to the rule are the GBP, NZD (New Zealand Dollar), AUD and the EUR (Euro).
The term cross rate refers to an exchange rate between two non-US Dollar currencies. Trading between two non-US Dollar currencies usually occurs by first trading one against the US Dollar and then trading the US Dollar against the second non-US Dollar currency. There are a few non-US Dollar currencies that are traded directly, such as GBP/EUR or EUR/CHF.