that exist to exchange or trade currencies. Foreign exchange is often referred to as
“forex” or “FX.” The foreign exchange market is an over-the-counter (OTC) market,
which means that there is no central exchange and clearinghouse where orders are
matched. FX dealers and market makers around the world are linked to each other
around the clock via telephone, computer, and fax, creating one cohesive market.
Over the past few years, currencies have become one of the most popular
products to trade. No other market can claim a 57 percent surge in volume over a
three-year time frame. According to the Triennial Central Bank Survey of the foreign
exchange market conducted by the Bank for International Settlements and published
in September 2004, daily trading volume hit a record of $1.9 trillion, up from $1.2
trillion (or $1.4 trillion at constant exchange rates) in 2001. This is estimated to be
approximately 20 times larger than the daily trading volume of the New York Stock
Exchange and the Nasdaq combined. Although there are many reasons that can be
used to explain this surge in activity, one of the most interesting is that the timing of
the surge in volume coincides fairly well with the emergence of online currency
trading for the individual investor.
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