Forex is a giant market (and you might have never heard of it properly)

Do you know that moment when you exchange money at the airport before traveling? Technically, you have already participated in Forex. But the reality of the foreign exchange market is much more complex and impressive than a simple currency exchange at the counter.

The numbers are absolutely overwhelming

While the New York Stock Exchange (NYSE) moves about US$ 200 billion per day, the foreign exchange market (FX) operates on a completely different scale: US$ 6.6 TRILLION daily, according to the 2019 Triennial Report from the Bank for International Settlements (BIS). That’s a 30-fold difference.

But here’s the catch: not all of this volume is what you might imagine. The US$ 6.6 trillion covers the entire global foreign exchange market. The “spot market” (spot market), which is the most relevant segment for most traders, reduces this number to approximately US$ 2 trillion daily. And if we consider only retail operators like us, we’re talking about around 3% to 5% of the total volume — roughly US$ 200 to 300 billion per day, possibly less.

How does it work in practice?

A practical example: Bill travels from Taiwan to the US. At the airport, he finds a currency exchange and discovers that the NTD/USD exchange rate is 0.034. Bill exchanges 10,000 NTD for 3,400 USD. At this moment, he has made a simple currency transaction — sold one currency and bought another.

Now multiply this example by millions of global operators doing the same (or something similar) every second. Most transactions in the FX market are not for tourism or international trade. Speculators and traders buy currencies expecting to sell them at higher prices later. The market breathes speculation.

A market that never sleeps

Unlike the NYSE or bond markets, Forex does not close. It operates 24 hours a day, 5 days a week — only closing on weekends.

How does this work? Trading doesn’t stop, it just migrates. When traders in New Zealand wake up in Auckland/Wellington, the market is already alive. From there, activity moves to Sydney, then Singapore, Hong Kong, Tokyo, Frankfurt, London, and finally New York, before everything starts over. A constant flow of liquidity circulating around the planet.

This is the structure of the foreign exchange market: decentralized, gigantic, speculative, and always active. Three characteristics that have made it the largest financial market in the world.