What’s Different About The Foreign Exchange Market

Daily transactions in the forex market total almost $4 trillion a day. This is more than the total of all the world’s stock exchanges added together. What’s more, there are just a controlled number of possible currency pairs compared with probably many thousands of company stocks. With so much cash concentrated in such a limited arena, price manipulation by the bigger players is much less of a difficulty, if it exists at all .

As you can imagine, such high liquidity also means that it is very improbable that a trade in any of the major currency pairs would have trouble getting matched, even in bad times. This is a huge advantage, especially if you’re trading massive positions.

Development

So if foreign exchange trading has so many benefits, why is it that it isn’t been popular until recently? The answer’s that the market itself only began for real in the 1970s when exchange rates stopped being permanently pegged by the ‘gold standard’ and were allowed to vary.

Even then, it was only the banks, hedge funds etc who were concerned in trading on the foreign exchange market initially. There was no history of personal backers getting on the phonephone to a broker to trade in currency as there was in stocks. This means that it was not until the development of the web the foreign exchange market opened up and currency exchange vs stocks turned into a real choice for retail traders.