Foreign exchange market

The Basics of Gann Theory

noreply@blogger.com (Unknown) — Wed, 20 Oct 2010 23:00:00 +0000

The basics of Gann’s theory’s lie in the concept of pattern, price and time and how the markets are affected by their relationship. Gann believed that these elements greatly influenced the future movement of the markets.

Gann’s main focus was on the fact that at various times these three elements had a large influence on the market. At times it is the price and time that is the overriding force in the market. At other times it could be a particular pattern of events that was the overriding force. The key to trading using some of Gann’s theories is their understanding.

In essence Gann’s theory is the identification of the best permutations of pattern, price and time to execute successful trades. While it may be true that any one of these elements can signal a trade a trader who concentrates on only one aspect may be less successful than a trader who is tolerant and watches for the best permutation of price, time and pattern.

Gann loved mathematics and he appreciated numbers and number theory. Many technicians claim that Gann’s theories revolve around mathematics and natural law. The use of numbers in Gann’s trading analysis was a central aspect. Gann particularly liked the squares of 16, 25,36,49,64, 121 and 144 and he believed the markets movements followed a pattern that was responsive to these squares. For example he might have utilized these numbers to determine a change of trend direction in 36 days or show resistance 36 pips from the top of a rally.

Gann also had a preference for some key numbers which are important in other areas apart from the financial markets. He favored numbers such as 12 which had a biblical and a zodiac connection. Numbers which Gann favored included 3, 5, 144 and 365.

Central to Gann’s pattern, price and time theories are charts called swing charts. Gann’s particular analysis used as a central theme the swing free forex charts because they used a correct scale between price and time allowing an analysts to make exact forecasts and compute the correct angles.

The scale between price and time is extremely important and should be correctly set and in a Gann formatted chart must be on a 1:1 scale or an equal amount of squares up and to the right. A line drawn from the corner of one grid to another will form a perfect 45 degree angle.

Speculation

noreply@blogger.com (Unknown) — Tue, 19 Oct 2010 23:00:00 +0000

Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.

Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors

Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.

Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.

In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling, followed by an eventual, larger, collapse. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.

Trading characteristics

noreply@blogger.com (Unknown) — Mon, 18 Oct 2010 23:00:00 +0000

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism.

The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.

Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another. Each currency pair thus constitutes an individual trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY are the ISO 4217 international three-letter code of the currencies involved. The first currency (XXX) is the base currency that is quoted relative to the second currency (YYY), called the counter currency (or quote currency). For instance, the quotation EURUSD (EUR/USD) 1.5465 is the price of the euro expressed in US dollars, meaning 1 euro = 1.5465 dollars. Historically, the base currency was the stronger currency at the creation of the pair. However, when the euro was created, the European Central Bank mandated that it always be the base currency in any pairing.

The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ.

On the spot market, according to the BIS study, the most heavily traded products were:

EURUSD: 27%
USDJPY: 13%
GBPUSD (also called cable): 12%

and the US currency was involved in 84.39% of transactions, followed by the euro (39.1%), the yen (19.0%), and sterling (12.9%) (see table). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies.

Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.

Retail foreign exchange brokers

noreply@blogger.com (Unknown) — Sun, 17 Oct 2010 23:00:00 +0000

Retail traders (individuals) constitute a growing segment of this market, both in size and importance. Currently, they participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated in the USA by the CFTC and NFA have in the past been subjected to periodic foreign exchange scams. To deal with the issue, the NFA and CFTC began (as of 2009) imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone.

There are two main types of retail FX brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. Brokers serve as an agent of the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge a commission or mark-up in addition to the price obtained in the market. Dealers or market makers, by contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are willing to deal at—the customer has the choice whether or not to trade at that price.

In assessing the suitability of an FX trading service, the customer should consider the ramifications of whether the service provider is acting as principal or agent. When the service provider acts as agent, the customer is generally assured of a known cost above the best inter-dealer FX rate. When the service provider acts as principal, no commission is paid, but the price offered may not be the best available in the market—since the service provider is taking the other side of the transaction, a conflict of interest may occur

Commercial companies

noreply@blogger.com (Unknown) — Sat, 16 Oct 2010 23:00:00 +0000

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Bank

noreply@blogger.com (Unknown) — Fri, 15 Oct 2010 23:00:00 +0000

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago

Market participants

noreply@blogger.com (Unknown) — Thu, 14 Oct 2010 23:00:00 +0000

Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largestcommercial banks and securities dealers. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. The difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX-metal market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size” Central banks also participate in the foreign exchange market to align currencies to their economic needs.

Market size and liquidity

noreply@blogger.com (Unknown) — Wed, 13 Oct 2010 23:00:00 +0000

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The foreign exchange market is the largest and most liquid financial market in the world. Traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.

Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York City accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.

Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account.

FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).

**Top 10 currency traders** % of overall volume, May 2010
Rank	Name	Market Share
1	Deutsche Bank	18.06%
2	UBS AG	11.30%
3	Barclays Capital	11.08%
4	Citi	7.69%
5	Royal Bank of Scotland	6.50%
6	JPMorgan	6.35%
7	HSBC	4.55%
8	Credit Suisse	4.44%
9	Goldman Sachs	4.28%
10	Morgan Stanley	2.91%

Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms).

Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. For instance, when theIMF calculates the value of its SDRs every day, they use the London market prices at noon that day.

The ten most active traders account for 77% of trading volume, according to the 2010 Euromoney FX survey. These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market taker will buy ("bid") from a wholesale or retail customer. The customer will buy from the market-maker at the higher "ask" price, and will sell at the lower "bid" price, thus giving up the "spread" as the cost of completing the trade. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EURUSD might be 1.2200/1.2203 on a wholesale broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".

These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100/1.2300 for transfers, or say 1.2000/1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EURUSD are usually no more than 3 pips wide (i.e., 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.

What u know about FOREX

noreply@blogger.com (Unknown) — Tue, 12 Oct 2010 23:00:00 +0000

It seems that more and more people are deciding to make the transition from the 9-5 grind to the freedom that comes with working from home. The internet affords hundreds of thousands of people the opportunity to work online from the comforts of their own homes. The massive use of popular social media networks and tools has made working from home more possible than ever.

What is Forex? Forex is an abbreviation of Foreign Exchange (also referred to as FX) and it is the largest financial market in the world.

The Forex market is the place where currencies are traded (currencies are money that is used as an exchange medium). In other words, it is the place where currencies are being sold and bought. In the Forex market all currencies are traded in real time.

Trading with currencies always means that there are two simultaneous transactions taking place. If a currency is being bought, it is also being sold. To better understand this notion, think of currencies as both the goods you are buying AND the method with which you're paying for the goods.

Since the Forex market is the place where currencies are traded in real time, people may trade one currency for another and make a profit off of this transaction. Profits are made when one is able to determine which currency's value will increase by the end of a pre-determined time period (such time periods may be short or long). The Forex market is open 24 hours a day, five days a week and it is based in four major cities: New York, London, Sydney, and Tokyo. The Forex market is open to individuals over the age of eighteen.

While Forex trading may sound daunting, it really isn't. It can be easily comprehended and understood without prior experience in finance or economy. It is challenging and exciting, thought provoking and manageable, stimulating and filled with opportunities.

Some Forex Basics:

The first currency listed in a currency pair is called the "base currency".
The "base currency" is usually the U.S. Dollar. Traders will generally trade the U.S. Dollar against another currency, which is called the "counter currency".
Currencies are quoted in pairs. For example: The pair U.S. Dollar and JPY will be quoted in the following way: USD/JPY equals to 2.5 (This means that 1 U.S. Dollar can buy 2.5 JPY).
When a quote increases, it means that the "base currency" has risen in value and the "counter currency" has weakened in value. For example: If the USD/JPY quote used to be equal to 2.5 but is now equal to 2.6, then this means that the dollar has strengthened (because 1 U.S. Dollar can now buy 2.6 JPY as opposed to the mere 2.5 JPY it could buy beforehand.)

Now that you know a thing or two about the Foreign Exchange market, we invite you to explore eToro-the Revolutionary Forex Trading Platform. You too can make your mark in the Foreign Exchange market. Use eToro as your gateway to the ever-growing world of Forex trading.

HOW TO ... LEARN FOREX

noreply@blogger.com (Unknown) — Mon, 11 Oct 2010 23:00:00 +0000

To learn Forex Trading, one must learn about Forex and one must learn about trading; while it is not always easy to separate one from the other, it may be more useful to attempt to look at these as two disciplines separately at first. Each requires a deep understanding of its own, each offers numerous and assorted ways to learn it.

To begin, one should always learn the Forex (foreign exchange) market first, even if only its basics, and even if only in a crash-course. There are many ways in which one can do so: one could choose to study the Foreign Exchange market formally, that is to say, via online classes, webinars, and/or via seminars, lectures, tutorials, university classes, or one could also choose a less formal method, that is to say, via (online or not) forums, private/public/interactive communication with experts, professionals, and even other students of Forex.

Basic knowledge that should be acquired before beginning to trade forex includes: Forex terminology, Forex symbols, Forex charts and graphs, history of the Foreign Exchange market, historical data, evolution of currencies, worldwide monetary systems, market activity, market trend, financial instruments, market professions (-the meaning of brokers, investors, consultants, etc), political factors that affect the market, economic factors that affect the market (-for example: interest rate, GDP, employment rates, etc), behavioral finance, psychological factors that affect the market, and last but not least, theories.

Once one has sufficient theoretical knowledge, one could go on and learn trading. Trading is a skill, and like any other skill, it needs to be practiced and practiced in order to be perfected. Practicing is almost the best mental training tool. This is why, when it comes to trading, the most useful way to learn forex trading is to practice (various trading platforms not only offer their services for free, but enable user to practice with demo money and with real-market rates, i.e. coming as close as possible to real forex trading but without having to risk losing any money). Via trading simulations, one could feel trading out; via trial and error one will know which trading techniques suit him/her best, which long-term transactions work, which require overnight trading, which need to be short-lives, how to control risk.

Having learned a satisfactory amount about the Foreign Exchange market, one could almost intuitively apply the theoretical knowledge into the practice of Forex trading. For example-if a news release came out about an increase in the unemployment rates, one should immediately be alarmed, for higher unemployment rates are not good for an economy, and will have a negative effect on it, which in return will have a negative effect on that country's currency. One, of course, will then act accordingly (sell or buy a certain currency as a result). This is to say, that the more knowledge one posses, the more s/he will be able to navigate the world of Forex automatically, for s/he will understand terms and charts (and follow their constant updating) and will know how to react fast to the release of economic news.

Studying never ends. It is important always to keep oneself on a learning curve; to stay in tune with this ever-growing market. One could always read books, magazines, visit blogs- and of course, read the newspapers; one's awareness to what goes on around him/her is a key component in becoming an experienced trader.

Forex glossary

noreply@blogger.com (Unknown) — Sun, 10 Oct 2010 23:00:00 +0000

Margin

The minimal cash deposit that you have to put up for the transaction. Trading forex on margin increases your buying power, but it can also increase your losses. Click here to learn more about margin.

See also Currency Pair

Take Profit

A trade order which automatically closes an open position at a specific price realizing a specific amount of profit. Use this order to realize your gains.

Forex glossary

noreply@blogger.com (Unknown) — Sat, 09 Oct 2010 23:00:00 +0000

Currency Pair

The two currencies that the exchange rate is comprised of. One of the currencies is bought, and the other is sold at the same time.

See also Base Currency, Counter Currency

Day Trading

The practice of opening and closing positions within the same trading day, so that at the end of the day the trader has no open positions.

See also Currency Pair

Leverage

Leverage is a loan from your broker, which enables you to trade with a small amount of capital. It can increase your potential profit, but it can also increase your risk.

See also Currency Pair

Lot

The standard unit of trading. One standard lot equals 100,000 units of the base currency, a mini lot equals 10,000 units, and a micro lot equals 1,000 units. eToro’s standard trade volume is the mini lot.

Forex glossary

noreply@blogger.com (Unknown) — Sat, 09 Oct 2010 00:18:00 +0000

Ask Price

The ask price (right quote display) is the price at which traders can buy the base currency. If you think that the EUR value will increase then you can choose to buy it for USD at the price displayed in the ask quote.

See also Currency Pair

Base Currency

The base currency is the first currency listed in any currency pair. Its value is determined against the counter currency’s value. For example, if the rate of the EUR/USD pair is 1.3525, then the EUR is the base currency and it is worth 1.3525 USD.

See also Counter Currency, Currency Pair, Rate

Bear

A Bear market is a pessimistic market with declining prices.

See also Currency Pair

Counter Currency

The counter currency is the second currency in any currency pair. Its value is determined against the base currency’s value. For example, in the following currency pair EUR/USD, the counter currency is USD.

The opportunity to profit

noreply@blogger.com (Unknown) — Fri, 08 Oct 2010 00:58:00 +0000

It doesn't take a financial genius to figure out that the biggest attraction of any market, or any financial venture for that matter, is the opportunity of profit. In the Forex market, profitability is expressed in a number of ways.

First of all, just to set the record straight, you don't have to be a millionaire to trade Forex. Unlike most financial markets, the Forex market allows you to start trading with relatively low initial capital. At eToro, you can start trading Forex with as little as $25!

Right about now you're probably asking yourself: "So how am I meant to make any serious money with such a low initial investment?" The currency tradingmarket has just the thing for you, because it allows you to use leveraged trading. Leveraged trading lets you open positions for tens of thousands of dollars while investing sums as small as $25. This means that Forex trading has the profit potential of tens and even hundreds of percent a day!

What is also unique about the Forex market is that any sort of movement is an opportunity to profit. Whether a currency is crashing or soaring, there is profit to be made, since you always have the option of buying or selling the currency of your choice. Unlike the stock market, you are not limited to speculating on rising stocks, and a falling market is just as good for business as a rising market.

Having said all that, it is important to remember that as profitable as the Forex market is, it still carries all the risks involved with financial trading. You should always be aware of the risk, and never risk money that you can't afford to lose.

Determinants of FX rates

noreply@blogger.com (Unknown) — Wed, 06 Oct 2010 15:37:00 +0000

Economic factors

These include: (a)economic policy, disseminated by government agencies and central banks, (b)economic conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends: Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health: Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
Productivity of an economy: Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector

Foreign exchange market

noreply@blogger.com (Unknown) — Wed, 06 Oct 2010 14:34:00 +0000

The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies.
The primary purpose of the foreign exchange market is to assist international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import British goods and pay Pound Sterling, even though the business's income is in US dollars. It also supports speculation, and facilitates the carry trade, in which investors borrow low-yielding currencies and lend (invest in) high-yielding currencies, and which (it has been claimed) may lead to loss of competitiveness in some countries.
In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The foreign exchange market is unique because of its

huge trading volume, leading to high liquidity
geographical dispersion
continuous operation: 24 hours a day except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday
the variety of factors that affect exchange rates
the low margins of relative profit compared with other markets of fixed income
the use of leverage to enhance profit margins with respect to account size

As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, as of April 2010 a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007.
The $3.21 trillion break-down is as follows:

$1.005 trillion in spot transactions
$362 billion in outright forwards
$1.714 trillion in foreign exchange swaps
$129 billion estimated gaps in reporting