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The FX

Not to be mistaken for the television show or as the abbreviation for special effects in movies, FX stands for foreign exchange. Foreign exchange, as the name suggests, is the exchange of two currencies. One currency is exchanged in favor of another. For example, the US dollar is being exchanged for another currency, the British pound, at a trading value of 2. This means that as of today, 2 US dollars can be exchanged for 1 British Pound. The venue where exchanges of currencies take place is called the foreign exchange market.

The foreign exchange market, or the Forex market, is an abstract construct; it has neither a physical nor central location. It is an electronic network of global dealers. It is separate and distinct from the stock market; the two markets have no correlation. As an abstract construct, the FX market is open 24 hours during weekdays. There is no closing or opening time unlike the stock market.

The network of global dealers consists primarily of large global or international banks, central banks, multinational corporations, investment management firms, hedge funds, governments and retail traders. 70% of the trading volume is generated by the top ten most active traders. The list includes some of the most internationally recognized banks such as Deutsche Bank, JP Morgan Chase, Citigroup and HSBC. Global investment and financial companies such as Morgan Stanley, Goldman Sachs and Merrill Lynch are among the most active traders as well. Retail traders or individual investors do not have direct access to the forex market. They trade through the banks and investment firms.

The forex market is the largest market in the world in terms of cash value being exchanged; consequently it is the most liquid. An average of $1.9 trillion worth of currencies is traded every day worldwide. As the most liquid market, the forex market is touted as the safest and most predictable market.

The size and absence of geographical boundaries makes the forex market inherently immune to currency speculation and fiscal policies implemented by national governments through their central banks to influence the value of their own currencies. Certain central banks are known to manipulate the value of their local currency vis a vis a foreign currency through time-tested measures such as increasing the circulation of that currency in their local economy. These devices are usually well-meaning and are implemented in response to the country's fiscal state as of that time. But for purposes of currency trading, these devices have proven to be short-lived and ineffectual to the overall forex market.