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In the last years, the foreign exchange market
has expanded from one where banks would execute
transactions between themselves to one in
which many other kinds of financial institutions
like brokers and market-makers participate
including non-financial corporations, investment
firms, pension funds and hedge funds.
Its' focus has broadened from servicing importers
and exporters to handling the vast amounts
of overseas investment and other capital flows
that currently take place. Lately foreign
exchange day trading has become increasingly
popular and various firms offer trading facilities
to the small investor.
Foreign exchange is an 'over the counter'
(OTC) market, that means that there is no
central exchange and clearing house where
orders are matched. Geographic trading 'centers'
exist around the world however and are: (in
order of importance) London, New York, Tokyo,
Singapore, Frankfurt, Geneva & Zurich,
Paris and Hong Kong. Essentially foreign exchange
deals are made between participants on the
basis of trust and reputation to deliver on
an agreement. In the case of banks trading
with one another, they do so solely on that
basis. In the retail market, customers demand
a written legally accepted contract between
themselves and their broker in exchange of
a deposit of funds on which basis the customer
may trade.
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