Main
Currency Markets
Currencies are
traded over an organized exchange or "over the counter"
(OTC). Most of the foreign exchange deals take place "over
the counter," between banks and other market participants.
Exchange traded currency instruments make up a very small portion
of the entire foreign exchange volume.
1.
Exchange traded currencies
A popular exchange
where currency futures are traded is the Chicago Mercantile Exchange
(CME) in the United States. In the CME, standard contract sizes
are traded in the International Money Market (IMM). Furthermore,
a central clearing house is in charge of matching transactions between
buyers and sellers. There are various disadvantages to trading currency
futures (read more about the advantages
of trading currencies over stocks and futures).
2.
Forex market
Compared to
the exchange market, the OTC foreign currency market is traded globally
by a large number of traders and organizations. In the OTC market,
market participants determine who they want to trade with depending
on trading conditions, attractiveness of prices and reputation of
the trading counterparty. The foreign exchange OTC market is the
largest and most popular market in the world. The figure below represents
the results of a study conducted in 1998 by the Bank for International
Settlements (BIS) showing global forex activity. While the daily
worldwide trading volume was estimated at about US$1.49 trillion,
the daily volume of currency futures was only estimated at US$12
billion.
Despite the
fact that the British Pound is only the fourth most widely traded
foreign currency, it is evident from the chart below that the United
Kingdom is the financial center with the greatest portion of worldwide
forex activity. The UK accounts for about 32% of all activity, followed
by the United States with 18%, and Japan with 8% (figures obtained
from the chart below).
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