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Main Forex Markets

The trading of currencies takes place either "over the counter" (OTC) or through an organized exchange, with the majority of deals taking place OTC between banks and other market participants. A small percentage of the entire foreign exchange volume is from exchange traded instruments.

1. Currencies traded on an exchange

The Chicago Mercantile Exchange (CME) in the US is a popular exchange where currency futures are traded. Standard contract sizes are traded in the International Money Market (IMM) in the CME. In addition to this, matching matching transactions between buyers and sellers is the role of a central clearing house. Trading currencies using futures have a number of disadvantages (read about the advantages of trading forex over futures and stocks).

2. The Forex market (OTC)

Unlike the exchange market, the forex OTC market is traded globally by a large number of individuals and organizations. In the OTC market, participants determine who they want to trade with depending on trading conditions, attractiveness of prices and reputation of the trading counterparty. The FX OTC market trading activity is much larger than for currency futures.

The UK is the financial center with the greatest portion of worldwide forex activity. This is despite the fact that the British Pound is only the fourth most widely traded foreign currency in the world. In second place is the United States and then Japan.

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