Introduction:

US Dollar Index DXY US Dollar Index (DXY) USD/GBP exchange

rate USD/Canadian dollar exchange rate EUR/USD (inverted) exchange
rate USD/JPY exchange rate USD/SEK exchange rate USD/CHF exchange
rate

The foreign exchange market (forex, FX (pronounced "fix"), or currency market) is a global
decentralized or over-the-counter (OTC) market for the trading of currencies. This market
determines foreign exchange rates for every currency. It includes all aspects of buying,
selling and exchanging currencies at current or determined prices. In terms of trading
volume, it is by far the largest market in the world, followed by the credit market.

The main participants in this market are the larger international banks. Financial centers
around the world function as anchors of trading between a wide range of multiple types of
buyers and sellers around the clock, with the exception of weekends. Since currencies are
always traded in pairs, the foreign exchange market does not set a currency's absolute value
but rather determines its relative value by setting the market price of one currency if paid
for with another. Ex: 1 USD is worth X CAD, or CHF, or JPY, etc.

The foreign exchange market works through financial institutions and operates on several
levels. Behind the scenes, banks turn to a smaller number of financial firms known as
"dealers", who are involved in large quantities of foreign exchange trading. Most foreign
exchange dealers are banks, so this behind-the-scenes market is sometimes called the
"interbank market" (although a few insurance companies and other kinds of financial firms
are involved). Trades between foreign exchange dealers can be very large, involving
hundreds of millions of dollars. Because of the sovereignty issue when involving two
currencies, Forex has little (if any) supervisory entity regulating its actions.

The foreign exchange market assists international trade and investments by enabling
currency conversion. For example, it permits a business in the United States to import goods
from European Union member states, especially Eurozone members, and pay Euros, even
though its income is in United States dollars. It also supports direct speculation and
evaluation relative to the value of currencies and the carry trade speculation, based on the
differential interest rate between two currencies.

In a typical foreign exchange transaction, a party purchases some quantity of one currency
by paying with some quantity of another currency.

The modern foreign exchange market began forming during the 1970s. This followed three
decades of government restrictions on foreign exchange transactions under the Bretton
Woods system of monetary management, which set out the rules for commercial and
financial relations among the world's major industrial states after World War II. Countries
gradually switched to floating exchange rates from the previous exchange rate regime, which
remained fixed per the Bretton Woods system.

The foreign exchange market is unique because of the following characteristics:

its huge trading volume, representing the largest asset class in the world leading to high
liquidity;
its geographical dispersion;
its continuous operation: 24 hours a day except for weekends, i.e., trading from 22:00 UTC
on Sunday (Sydney) until 22:00 UTC Friday (New York);
the variety of factors that affect exchange rates;
the low margins of relative profit compared with other markets of fixed income; and
the use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect competition,
notwithstanding currency intervention by central banks.
According to the Bank for International Settlements, the preliminary global results from the
2022 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity
show that trading in foreign exchange markets averaged US$7.5 trillion per day in April 2022.
This is up from US$6.6 trillion in April 2019. Measured by value, foreign exchange swaps
were traded more than any other instrument in April 2022, at US$3.8 trillion per day,
followed by spot trading at US$2.1 trillion.

The $7.5 trillion break-down is as follows:

$2.1 trillion in spot transactions

$1.2 trillion in outright forwards
$3.8 trillion in foreign exchange swaps
$124 billion currency swaps
$304 billion in options and other products

History:

Ancient
Currency trading and exchange have roots that extend far back into ancient history. In the
times of the Talmudic writings, which date back to Biblical times, money-changers were
already prevalent in the Holy Land. These individuals facilitated currency exchange for
others, often charging a commission or fee for their services. They operated from city stalls
and, during feast times, conducted transactions in the Temple's Court of the Gentiles.
Money-changers were also known to be silversmiths and goldsmiths in ancient times.

The Byzantine government maintained a monopoly on currency exchange during the 4th
century AD, exerting control over the exchange of currency within its territories.

Evidence of currency exchange in ancient civilizations can be found in historical documents

such as the Papyri PCZ I 59021, dating back to around 259/8 BC, which depict the exchange
of coinage in Ancient Egypt.
Currency and exchange played integral roles in trade and commerce in the ancient world.
They facilitated the buying and selling of various goods such as food, pottery, and raw
materials. In situations where one currency held more intrinsic value than another due to
factors like size or content, merchants could barter fewer units of the former for more units
of the latter, or for a greater quantity of material goods. This practice highlights the
importance of currency in facilitating trade and economic transactions throughout history.

Many ancient currencies were tied to specific quantities of precious metals such as silver and
gold. This linkage provided a recognized standard against which the value of currencies could
be measured, contributing to stability and facilitating trade across different regions and
civilizations.

In summary, currency trading and exchange have been fundamental components of human
economic activity since ancient times. The evolution of these practices has played a crucial
role in shaping the history of commerce and finance, laying the groundwork for the
sophisticated foreign exchange markets that exist today.

Medieval and later

During the 15th century, the Medici family, renowned for their influence in banking and
commerce, played a pivotal role in the evolution of foreign exchange practices. As textile
merchants conducted trade across international borders, the Medici family established
banks in various foreign locations to facilitate currency exchange. These banks served as
intermediaries, enabling merchants to convert currencies and conduct transactions more
efficiently.

To streamline the process of currency exchange and account management, the Medici family
introduced the concept of the nostro account book. Derived from the Italian word "nostro,"
meaning "ours," this accounting ledger featured two columns detailing amounts of foreign
and local currencies. It provided merchants with a comprehensive record of their
transactions and accounts held with foreign banks, enhancing transparency and facilitating
smoother trade operations.

By the 17th or 18th century, Amsterdam emerged as a prominent hub for foreign exchange
trading. The city maintained an active forex market, attracting traders and merchants from
across Europe. This vibrant marketplace facilitated the exchange of various currencies,
fostering economic growth and international commerce.
One significant historical event occurred in 1704 when foreign exchange transactions took
place between agents representing the Kingdom of England and the County of Holland.
These exchanges reflected the ongoing economic and political interactions between
European powers during this period. Such transactions underscored the importance of
foreign exchange in facilitating diplomatic and commercial relations between nations.

Overall, the contributions of the Medici family, coupled with the development of forex
markets in cities like Amsterdam, played a crucial role in shaping the evolution of
international trade and finance. These historical milestones laid the foundation for modern
foreign exchange practices and contributed to the globalization of commerce and finance.

Early modern
During the mid-19th century, Alex. Brown & Sons emerged as a significant player in foreign
exchange trading in the United States, establishing itself as a leading currency trader by
around 1850. The firm's involvement in currency trading contributed to the growth and
development of the foreign exchange market in the USA during this period.

In 1880, J.M. do Espírito Santo de Silva, representing Banco Espírito Santo, obtained
permission to engage in foreign exchange trading activities. This marked a significant
milestone, as it expanded the scope of foreign exchange operations, particularly in Europe.

The year 1880 holds particular significance in the history of modern foreign exchange, as it
coincides with the introduction of the gold standard. This monetary system, wherein
currencies were directly pegged to gold, laid the foundation for modern foreign exchange
practices and facilitated international trade and finance.

However, the outbreak of the First World War brought about significant changes in the
international monetary system. As countries became embroiled in conflict, the demands of
war led to the abandonment of the gold standard by many nations. This shift marked the
end of an era characterized by limited control over international trade and the beginning of
a new phase in the evolution of foreign exchange markets.

Overall, the contributions of firms like Alex. Brown & Sons and Banco Espírito Santo,
combined with the establishment of the gold standard in 1880, played crucial roles in
shaping the modern foreign exchange landscape. These developments laid the groundwork
for the globalization of finance and commerce that continues to define the contemporary
foreign exchange market.

Modern to post-modern
Between 1899 and 1913, there was a notable increase in countries' holdings of foreign
exchange, with an annual growth rate of 10.8%. Concurrently, holdings of gold also saw
growth, albeit at a slightly slower annual rate of 6.3% between 1903 and 1913.

By the end of 1913, the pound sterling played a dominant role in global foreign exchange
transactions, accounting for nearly half of the world's foreign exchange dealings. The
prominence of London as a financial hub was underscored by the significant increase in the
number of foreign banks operating within the city's boundaries, which surged from 3 in 1860
to 71 in 1913. Additionally, the number of London-based foreign exchange brokers saw a
notable rise, with only two in 1902 expanding to 17 between 1919 and 1922, and reaching
40 by 1924.

During the early 20th century, currency trading activity was most active in Paris, New York
City, and Berlin, with Britain playing a relatively minor role until 1914. However, by 1928,
foreign exchange trading had become integral to London's financial ecosystem, with the city
emerging as a key player in the global forex market.

The Kleinwort family was renowned as leaders in the foreign exchange market during the
1920s, with other notable firms like Japheth, Montagu & Co. and Seligman also making
significant contributions. This period saw the evolution of London's forex trade, resembling
its modern form by the end of the decade.

However, despite the growth and evolution of London's foreign exchange market, factors
such as continental exchange controls in Europe and economic challenges in Latin America
hampered efforts to achieve widespread prosperity from trade during the 1930s. These
challenges underscored the complex interplay of economic forces shaping the global foreign
exchange landscape during this period.
After World War II
In 1944, the Bretton Woods Accord was signed, allowing currencies to fluctuate within a
range of ±1% from the currency's par exchange rate. In Japan, the Foreign Exchange Bank
Law was introduced in 1954. As a result, the Bank of Tokyo became a center of foreign
exchange by September 1954. Between 1954 and 1959, Japanese law was changed to allow
foreign exchange dealings in many more Western currencies.

U.S. President, Richard Nixon is credited with ending the Bretton Woods Accord and fixed
rates of exchange, eventually resulting in a free-floating currency system. After the Accord
ended in 1971, the Smithsonian Agreement allowed rates to fluctuate by up to ±2%. In
1961–62, the volume of foreign operations by the U.S. Federal Reserve was relatively low.
Those involved in controlling exchange rates found the boundaries of the Agreement were
not realistic and so ceased this in March 1973, when sometime afterward none of the major
currencies were maintained with a capacity for conversion to gold, organizations relied
instead on reserves of currency. From 1970 to 1973, the volume of trading in the market
increased three-fold. At some time (according to Gandolfo during February–March 1973)
some of the markets were "split", and a two-tier currency market was subsequently
introduced, with dual currency rates. This was abolished in March 1974.

Reuters introduced computer monitors during June 1973, replacing the telephones and telex
used previously for trading quotes.

Markets close
The forex markets faced significant challenges in the early 1970s due to the perceived
ineffectiveness of international agreements such as the Bretton Woods Accord and the
European Joint Float. This led to the closure of forex markets at various times between 1972
and March 1973.

In 1976, a historic event occurred when the West German government executed a
substantial purchase of US dollars, amounting to nearly $3 billion (as reported in The
Statesman: Volume 18, 1974). This acquisition highlighted the limitations of existing
exchange rate control measures and underscored the difficulty in achieving balance within
the international monetary system. As a result of this significant purchase, the foreign
exchange markets in West Germany and other European countries closed for a period of two
weeks, occurring in February and/or March 1973.

Giersch, Paqué, & Schmieding note that the markets closed after the purchase of "7.5 million
Dmarks." Brawley corroborates this, stating that exchange markets had to be closed, with a
significant purchase occurring after the closure. This sequence of events suggests a
connection between the large purchase of US dollars and the subsequent closure of forex
markets.

Following this temporary closure, forex markets reopened on March 1, with trading
resuming after the significant purchase mentioned earlier. These events illustrate the
challenges faced by policymakers in managing exchange rates and the complexities inherent
in the functioning of the international monetary system during this period.

Overall, the closure of forex markets in 1972 and March 1973, coupled with the significant
purchase of US dollars by the West German government in 1976, underscored the inherent
difficulties in maintaining stability within the global foreign exchange markets. These events
marked pivotal moments in the evolution of international monetary policy and the
functioning of forex markets.

After 1973
In developed nations, state control over foreign exchange trading ceased in 1973, marking
the onset of a period characterized by complete floating exchange rates and relatively free
market conditions. However, some sources suggest that the participation of U.S. retail
customers in trading currency pairs began in 1982, with additional currency pairs becoming
available in the subsequent year.

Significant developments in foreign exchange trading occurred in various countries during

the early 1980s. On January 1, 1981, following changes initiated in 1978, the People's Bank
of China granted certain domestic enterprises permission to engage in foreign exchange
trading. Similarly, South Korea abolished Forex controls and allowed free trade to commence
for the first time in 1981, with the government officially accepting the IMF quota for
international trade in 1988.

European banks, particularly the Bundesbank, exerted notable influence on the Forex
market on February 27, 1985, through interventions. This event underscored the
interconnectedness of global financial markets and highlighted the impact of central bank
actions on currency valuations.
The distribution of Forex trading activity during 1987 revealed that the United Kingdom
accounted for the largest proportion of all trades worldwide, slightly exceeding one-quarter
of total trading volume. Following the UK, the United States emerged as the second-largest
participant in Forex trading during this period.

In 1991, Iran initiated significant changes in its international agreements with certain
countries, transitioning from oil-barter arrangements to foreign exchange-based
transactions. This shift reflected evolving global economic dynamics and the increasing
importance of foreign exchange markets in facilitating international trade and financial
transactions.

Overall, the timeline provided showcases key milestones in the evolution of foreign
exchange markets, illustrating the gradual transition from state-controlled systems to the
establishment of modern, relatively free-market conditions. These developments have
significantly shaped the landscape of global finance and influenced the behavior of market
participants across the world.

Market size and liquidity

.

The foreign exchange market is the most liquid financial market in the world. Traders include
governments and central banks, commercial banks, other institutional investors and financial
institutions, currency speculators, other commercial corporations, and individuals. According
to the 2019 Triennial Central Bank Survey, coordinated by the Bank for International
Settlements, average daily turnover was $7.5 trillion in April 2022 (compared to $1.9 trillion
in 2004). Of this $6.6 trillion, $2.1 trillion was spot transactions and $5.4 trillion was traded
in outright forwards, swaps, and other derivatives.

Foreign exchange is traded in an over-the-counter market where brokers/dealers negotiate

directly with one another, so there is no central exchange or clearing house. The biggest
geographic trading center is the United Kingdom, primarily London. In April 2022, trading in
the United Kingdom accounted for 38.1% of the total, making it by far the most important
center for foreign exchange trading in the world. Owing to London's dominance in the
market, a particular currency's quoted price is usually the London market price. For instance,
when the International Monetary Fund calculates the value of its special drawing rights
every day, they use the London market prices at noon that day. Trading in the United States
accounted for 19.4%, Singapore and Hong Kong account for 9.4% and 7.1%, respectively, and
Japan accounted for 4.4%.

Turnover of exchange-traded foreign exchange futures and options was growing rapidly in
2004-2013, reaching $145 billion in April 2013 (double the turnover recorded in April 2007).
As of April 2022, exchange-traded currency derivatives represent 2% of OTC foreign
exchange turnover. Foreign exchange futures contracts were introduced in 1972 at the
Chicago Mercantile Exchange and are traded more than to most other futures contracts.

Most developed countries permit the trading of derivative products (such as futures and
options on futures) on their exchanges. All these developed countries already have fully
convertible capital accounts. Some governments of emerging markets do not allow foreign
exchange derivative products on their exchanges because they have capital controls. The use
of derivatives is growing in many emerging economies. Countries such as South Korea, South
Africa, and India have established currency futures exchanges, despite having some capital
controls.

Foreign exchange trading increased by 20% between April 2007 and April 2010 and has more
than doubled since 2004. The increase in turnover is due to a number of factors: the growing
importance of foreign exchange as an asset class, the increased trading activity of high-
frequency traders, and the emergence of retail investors as an important market segment.
The growth of electronic execution and the diverse selection of execution venues has
lowered transaction costs, increased market liquidity, and attracted greater participation
from many customer types. In particular, electronic trading via online portals has made it
easier for retail traders to trade in the foreign exchange market. By 2010, retail trading was
estimated to account for up to 10% of spot turnover, or $150 billion per day (see below:
Retail foreign exchange traders).

Market participants

Top 10 currency traders[60]

% of overall volume, June 2020

Ran
Name Market share
k

1 JP Morgan 10.78%

2 UBS 8.13%

3 XTX Markets 7.58%

4 Deutsche Bank 7.38%

5 Citi 5.50%

6 HSBC 5.33%

7 Jump Trading 5.23%

8 Goldman Sachs 4.62%

 9 State Street Corporation 4.61%

10 Bank of America Merrill Lynch 4.50%

The foreign exchange market operates with distinct levels of access, unlike the stock market.
At the pinnacle of this structure is the interbank foreign exchange market, comprising the
largest commercial banks and securities dealers. Within this exclusive realm, known as the
interbank market, bid-ask spreads—the difference between buying and selling prices—are
razor-thin and typically concealed from participants outside this inner circle.

As one descends through the levels of access within the foreign exchange market, the bid-
ask spreads widen gradually. For instance, while spreads may be as narrow as 0 to 1 pip in
the interbank market, they may broaden to 1–2 pips for currencies like the EUR in lower
tiers. This widening of spreads is primarily driven by transaction volume. Traders capable of
executing large-volume transactions can negotiate smaller bid-ask spreads, referred to as
better spreads. The level of access a market participant enjoys is determined by the size of
their trading "line," or the amount of capital they wield.

The interbank market, occupying the top tier, accounts for a substantial portion—51%—of
all foreign exchange transactions. Moving down the hierarchy, smaller banks follow, trailed
by large multinational corporations seeking to hedge risks and manage international payroll
obligations. Additionally, large hedge funds and even certain retail market makers participate
in lower levels of the market structure.

In recent years, institutional investors such as pension funds, insurance companies, and
mutual funds have assumed increasingly significant roles in financial markets, including the
foreign exchange market. This trend has been particularly notable since the early 2000s, as
highlighted by Galati and Melvin (2004). Furthermore, hedge funds have experienced
substantial growth both in terms of numbers and overall size during the 2001–2004 period,
according to their observations.

Central banks, too, are active participants in the foreign exchange market, engaging in
transactions to align currencies with their economic objectives. Their involvement can
influence market dynamics and exchange rate movements, adding another layer of
complexity to the foreign exchange landscape. Overall, the hierarchical structure of the
foreign exchange market reflects varying degrees of access and participation, with each level
contributing to the market's overall liquidity and efficiency.
Commercial companies

An essential component of the foreign exchange market stems from the financial operations
of companies requiring foreign exchange to conduct transactions related to goods or
services. Commercial enterprises engage in currency trading to facilitate payments for
imports, exports, and other business activities. While the volumes traded by these
companies are typically smaller compared to banks or speculators, their cumulative impact
on market rates can be significant over the long term.

Commercial companies' trades often have limited short-term effects on market rates due to
their relatively small transaction sizes and the frequency of their trading activities. However,
the aggregate effect of trade flows plays a crucial role in determining the overall direction of
a currency's exchange rate over time. As companies engage in international trade, the supply
and demand dynamics of currencies are influenced, impacting exchange rates accordingly.

Multinational corporations (MNCs) can exert an unpredictable influence on currency

markets, especially when they execute large transactions to hedge against currency risk or
cover exposures arising from international operations. These positions may not be widely
known by other market participants, making the impact of MNCs' trading activities difficult
to anticipate. The sheer scale of these transactions can lead to significant fluctuations in
exchange rates, particularly if they involve substantial volumes of currency.

Overall, while commercial companies may individually trade smaller amounts compared to
financial institutions, their collective actions contribute to the overall dynamics of the
foreign exchange market. Trade flows are a fundamental factor driving currency movements
in the long term, and the activities of multinational corporations can introduce an element
of unpredictability, influencing market sentiment and exchange rate fluctuations.

Central banks
National central banks wield significant influence in the foreign exchange markets, as they
are tasked with controlling various economic factors such as money supply, inflation, and
interest rates. Often, these central banks establish official or unofficial target rates for their
currencies, aiming to maintain stability and support economic objectives.
One of the key tools at the disposal of central banks is their substantial foreign exchange
reserves, which they can deploy to intervene in the market and stabilize currency values.
Through buying or selling currencies, central banks can influence exchange rates and
mitigate excessive fluctuations that may pose risks to economic stability.

However, the effectiveness of central bank interventions, often termed "stabilizing

speculation," is subject to debate. Unlike private traders or institutions, central banks do not
face the risk of bankruptcy if they incur substantial losses in the foreign exchange market.
This unique position may impact their risk appetite and the extent to which they engage in
speculative activities to stabilize currencies.

Moreover, there is limited evidence to suggest that central banks consistently generate
profits from their trading activities in the foreign exchange market. While interventions may
help to smooth currency movements in the short term, their long-term impact on exchange
rates and market dynamics remains uncertain. Central banks must balance the objectives of
maintaining currency stability with other macroeconomic goals, such as promoting economic
growth and controlling inflation.

In summary, national central banks play a pivotal role in foreign exchange markets by
utilizing their monetary policy tools and foreign exchange reserves to influence currency
values. However, the effectiveness of their interventions and the extent to which they
engage in speculative trading practices are subjects of ongoing scrutiny and debate within
the financial community.

Foreign exchange fixing

Foreign exchange fixing refers to the daily monetary exchange rate established by the
national bank of each country. This fixed rate serves as a reference point for evaluating the
behavior of a country's currency in the foreign exchange market. Central banks utilize fixing
times and exchange rates to assess the performance and stability of their currency. The
fixing exchange rates are believed to reflect the real value of equilibrium in the market,
providing insights into the relative strength or weakness of a currency.

Banks, dealers, and traders closely monitor fixing rates as they serve as important indicators
of market trends. These rates influence trading decisions and strategies, helping participants
gauge the direction in which currency values may move. Consequently, fixing rates play a
significant role in shaping trading activities and market sentiment.
The expectation or rumor of a central bank's intervention in the foreign exchange market
can have a notable impact on stabilizing a currency. Mere speculation about such
interventions may influence market behavior, prompting traders to adjust their positions
accordingly. However, in countries with a "dirty float" currency regime, where the central
bank intervenes in the market to manage currency values, aggressive interventions may
occur multiple times throughout the year. Despite these efforts, central banks do not always
achieve their desired objectives.

The market's combined resources and dynamics can sometimes overpower the interventions
of central banks, leading to unexpected outcomes. Instances of this nature were witnessed
during the collapse of the European Exchange Rate Mechanism in 1992–93 and more
recently in Asian markets. These events underscore the complexity of foreign exchange
markets and the challenges central banks face in managing currency stability amidst
fluctuating market conditions.

In summary, foreign exchange fixing serves as a crucial mechanism for assessing currency
performance and guiding market participants. While central banks may intervene to stabilize
currencies, the effectiveness of such interventions can be influenced by various factors,
highlighting the intricate dynamics of the global foreign exchange market.

Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers
such as pension funds and endowments) use the foreign exchange market to facilitate
transactions in foreign securities. For example, an investment manager bearing an
international equity portfolio needs to purchase and sell several pairs of foreign currencies
to pay for foreign securities purchases.

Some investment management firms also have more speculative specialist currency overlay
operations, which manage clients' currency exposures with the aim of generating profits as
well as limiting risk. While the number of this type of specialist firms is quite small, many
have a large value of assets under management and can, therefore, generate large trades.

Retail foreign exchange traders

Individual retail speculative traders constitute a growing segment of this market. Currently,
they participate indirectly through brokers or banks. Retail brokers, while largely controlled
and regulated in the US by the Commodity Futures Trading Commission and National
Futures Association, have previously been subjected to periodic foreign exchange fraud. To
deal with the issue, in 2010 the NFA required its members that deal in the Forex markets to
register as such (i.e., Forex CTA instead of a CTA). Those NFA members that would
traditionally be subject to minimum net capital requirements, FCMs and IBs, are subject to
greater minimum net capital requirements if they deal in Forex. A number of the foreign
exchange brokers operate from the UK under Financial Services Authority regulations where
foreign exchange trading using margin is part of the wider over-the-counter derivatives
trading industry that includes contracts for difference and financial spread betting.

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 principals in the transaction versus the retail customer, and quote a price they are
willing to deal at.

Non-bank foreign exchange companies

Non-bank foreign exchange companies (also known as foreign exchange brokers) play a vital
role in facilitating currency exchange and international payments for both private individuals
and businesses. Unlike traditional banks, these companies specialize in providing currency
exchange services without engaging in speculative trading activities. Instead, their focus lies
on facilitating transactions involving the physical delivery of currency to bank accounts.

In the United Kingdom, approximately 14% of currency transfers and payments are
conducted through non-bank foreign exchange companies. These companies distinguish
themselves by offering competitive exchange rates and lower transaction fees compared to
traditional banks. This competitive advantage serves as a significant selling point, attracting
customers seeking more cost-effective solutions for their currency exchange needs.

Furthermore, these companies are not to be confused with money transfer or remittance
companies, as they typically handle higher-value transactions. In India, for instance, non-
bank foreign exchange companies process approximately US$2 billion worth of transactions
daily, which accounts for around 25% of currency transfers and payments in the country.
Their market presence has been steadily expanding, particularly with the emergence of
online platforms, which have facilitated easier access to their services.
One of the key factors driving the growth of non-bank foreign exchange companies is their
ability to offer better exchange rates compared to traditional banks. This competitive pricing
strategy attracts a significant portion of customers who prioritize cost efficiency in their
currency exchange transactions.

Regulation within this sector is crucial to maintain transparency and safeguard the interests
of consumers. In India, these companies are regulated by the Foreign Exchange Dealers
Association of India (FEDAI) and are subject to the provisions outlined in the Foreign
Exchange Management Act, 1999 (FEMA). Compliance with these regulations ensures that
transactions conducted through non-bank foreign exchange companies adhere to legal
standards and promote financial stability within the market.

Overall, the presence of non-bank foreign exchange companies serves to diversify the
options available to individuals and businesses for conducting currency exchange and
international payments. Their competitive pricing, coupled with regulatory oversight,
contributes to the efficiency and reliability of the foreign exchange market, facilitating
smoother transactions for all parties involved.

Money transfer/remittance companies and bureaux de change

Money transfer companies, also known as remittance companies, specialize in facilitating

high-volume, low-value transfers, particularly by economic migrants sending money back to
their home countries. As of 2007, the Aite Group estimated that global remittances totaled
$369 billion, marking an 8% increase from the previous year. Notably, the four largest
recipient markets—India, China, Mexico, and the Philippines—received $95 billion
collectively. Leading the market is Western Union, which boasts a network of 345,000 agents
worldwide, followed closely by UAE Exchange.

These companies play a crucial role in supporting the financial well-being of families and
communities in various parts of the world by enabling individuals to send funds across
borders efficiently and securely. The services they offer cater to individuals who typically
engage in recurring transactions of relatively small amounts, ensuring that their loved ones
receive essential financial support.

Bureaux de change, alternatively known as currency transfer companies, provide services

tailored to travelers needing to exchange low-value amounts of foreign currency. Commonly
found in locations such as airports, train stations, and tourist destinations, these
establishments facilitate the exchange of physical currency notes from one currency to
another.

While money transfer companies primarily focus on facilitating cross-border remittances,

bureaux de change specialize in serving the needs of travelers seeking immediate currency
exchange solutions. They offer convenience and accessibility to individuals requiring foreign
currency for their travels, thereby eliminating the need to rely solely on traditional banks for
such services.

Both money transfer companies and bureaux de change access foreign exchange markets to
fulfill their respective functions. While some may directly engage with banks for currency
conversion, others may utilize the services of non-bank foreign exchange companies to
access foreign exchange markets efficiently.

Overall, these entities play complementary roles within the financial ecosystem, with money
transfer companies catering to the needs of migrants and their families, while bureaux de
change serve the requirements of travelers seeking currency exchange services. Together,
they contribute to the efficiency and accessibility of global financial transactions, facilitating
seamless movement of funds and currencies across borders.
Most traded currencies by value
Currency distribution
Currency of ISOglobal
4217foreign
Symbolexchange
or Proportion
marketof
turnover[70]
daily volume
Growth rate (2019–2022)
v code abbreviation Apr-19 Apr-22
t U.S. dollar USD US$ 88.30% 88.50% Increase 0.2%
e Euro EUR € 32.30% 30.50% Decrease 5.5%
3 Japanese yenJPY ¥/円 16.80% 16.70% Decrease 0.6%
4 Sterling GBP £ 12.80% 12.90% Increase 0.7%
5 Renminbi CNY ¥/元 4.30% 7.00% Increase 62.7%
6 Australian dollar
AUD A$ 6.80% 6.40% Decrease 5.8%
7 Canadian dollar
CAD C$ 5.00% 6.20% Increase 24%
8 Swiss francCHF CHF 4.90% 5.20% Increase 6.1%
9 Hong Kong HKD
dollar HK$ 3.50% 2.60% Decrease 25.7%
10 Singapore dollar
SGD S$ 1.80% 2.40% Increase 33.3%
11 Swedish kronaSEK kr 2.00% 2.20% Increase 10%
12 South Korean KRW won ₩ / 원 2.00% 1.90% Decrease 5%
13 NorwegianNOK krone kr 1.80% 1.70% Decrease 5.5%
14 New Zealand NZDdollar NZ$ 2.10% 1.70% Decrease 19%
15 Indian rupee INR ₹ 1.70% 1.60% Decrease 5.8%
16 Mexican peso MXN $ 1.70% 1.50% Decrease 11.7%
17 New Taiwan TWDdollar NT$ 0.90% 1.10% Increase 22.2%
18 South AfricanZARrand R 1.10% 1.00% Decrease 9%
19 Brazilian real
BRL R$ 1.10% 0.90% Decrease 18.1%
20 Danish krone DKK kr 0.60% 0.70% Increase 16.6%
21 Polish złotyPLN zł 0.60% 0.70% Increase 16.6%
22 Thai baht THB ฿ 0.50% 0.40% Decrease 20%
23 Israeli new ILS
shekel ₪ 0.30% 0.40% Increase 33.3%
24 IndonesianIDR rupiah Rp 0.40% 0.40% Steady 0%
25 Czech koruna CZK Kč 0.40% 0.40% Steady 0%
26 UAE dirhamAED ‫إ‬.‫د‬ 0.20% 0.40% Increase 100%
27 Turkish liraTRY ₺ 1.10% 0.40% Decrease 63.6%
28 Hungarian forint
HUF Ft 0.40% 0.30% Decrease 25%
29 Chilean peso CLP CLP$ 0.30% 0.30% Steady 0%
30 Saudi riyal SAR ‫﷼‬ 0.20% 0.20% Steady 0%
31 Philippine peso
PHP ₱ 0.30% 0.20% Decrease 33.3%
32 Malaysian ringgit
MYR RM 0.20% 0.20% Steady 0%
33 Colombian COP peso COL$ 0.20% 0.20% Steady 0%
34 Russian rubleRUB ₽ 1.10% 0.20% Decrease 81.8%
35 Romanian leu RON L 0.10% 0.10% Steady 0%
36 Peruvian solPEN S/ 0.10% 0.10% Steady 0%
37 Bahraini dinar
BHD .‫ب‬.‫د‬ 0.00% 0.00% Steady 0%
38 Bulgarian levBGN BGN 0.00% 0.00% Steady 0%
39 Argentine peso
ARS ARG$ 0.10% 0.00% Decrease 100%
… Other 1.80% 2.30% Increase 27.7%
Total[a] 200.00% 200.00%

There is no unified or centrally cleared market for the majority of 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 quite close due to arbitrage. Due to London's
dominance in the market, a particular currency's quoted price is usually the London market
price. Major trading exchanges include Electronic Broking Services (EBS) and Thomson
Reuters Dealing, while major banks also offer trading systems. 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 centers are London and New York City, though 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.

Fluctuations in exchange rates are usually caused by actual monetary flows as well as by
expectations of changes in monetary flows. These are 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, large banks have an important advantage; they can see their
customers' order flow.

Currencies are traded against one another in pairs. 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. The
market convention is to quote most exchange rates against the USD with the US dollar as the
base currency (e.g. USDJPY, USDCAD, USDCHF). The exceptions are the British pound (GBP),
Australian dollar (AUD), the New Zealand dollar (NZD) and the euro (EUR) where the USD is
the counter currency (e.g. GBPUSD, AUDUSD, NZDUSD, EURUSD).

The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes a positive currency
correlation between XXXYYY and XXXZZZ.
On the spot market, according to the 2022 Triennial Survey, the most heavily traded bilateral
currency pairs were:

EURUSD: 22.7%
USDJPY: 13.5%
GBPUSD (also called cable): 9.5%
The U.S. currency was involved in 88.5% of transactions, followed by the euro (30.5%), the
yen (16.7%), 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.