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FX Market Organisation


The FX market is the sum of following markets: spot , forward and swap markets.

Spot Market

In the spot market, currencies are traded for immediate delivery: within 2 days after the transaction has been concluded.

Forward Market

In the forward market contracts are closed to buy or to sell currencies for forward delivery. 

Swap Market

The swap market is the sum of swap transactions that involve a package of a spot and a forward currency contract.
Spot transactions account for about 33% of the market volumes, forward transactions account for another 12% and the remaining 55% consists of swap trades.
Source: Bank for International Settlements, December’07.

FX Futures Market

As an alternative to the FX forward market, there is the FX futures market and the main FX futures exchange is the Chicago Mercantile Exchange (CME) located in United States.

Futures contracts are standardized contracts that trade on organized markets for specific delivery dates only.

In the case of the CME, the most actively traded currency futures contracts are for March, June, September and December delivery.

Contracts expire 2 business days before the third Wednesday of the delivery month.

Contract size and maturity are standardized and the FX trades are settled by the exchange clearing house.

Exchange clearing house is: 

  • Backed by its members’ capital(via initial margins and margin calls eventually)
  • The legal counterparty to both the buyer and the seller of the futures contracts
  • The guarantor of no counterparty risk at contract delivery

Currency futures contracts are currently available for Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese renmbinbi, Swiss franc, European euro and so on.

The CME added a number of cross rates contracts and by taking the US dollar out of the equation, cross rates futures allow the market participant to hedge directly the currency risk that arises from dealing with non-dollar currencies.

FX Market Dimension

FX market is by far the largest financial market in the world.
According to the Bank for international Settlements ‘survey conducted in 2007, worldwide FX trading volume is around $3.2 trillion daily, or $800 trillion a year.
Considering that US gross domestic product (gdp) was $14 trillion in 2007, yearly worldwide FX volume was 51 times greater that US gdp.

FX market organization

The FX market is an electronically linked network of market participants.

Underlying currency transactions are done over -  the -  counter (otc), which means that transactions are not closed in a formalized exchange (such as LSE, CME or NYSE).

Currency trading takes place 24 hours a day for 5.5 days a week.

The FX market is not confined to any one country but it is dispersed trough the main financial centres in the world: London, New York, Frankfurt, Milan, Tokyo and Toronto.

The major players in the spot foreign exchange market are:

  • Central Banks: central banks intervene in the FX market time to time to smooth exchange rate fluctuations: the intervention could be isolated (one central bank acting) or coordinated (a group of central banks acting). Central banks could buy or sell foreign exchange currencies also to maintain announced target for their exchange rate. Central banks FX flows are not distinguishable from other FX deals.
  • FX Brokers and Dealers: they bring together buyers and sellers of FX transactions. They receive a small commission on all trades: in United States the standard FX commission is 1/32 of 1% or $312.50 for $1million trade. FX brokers tend to specialize in certain currencies and they normally provide information of FX quoting rates for other market participants. As in the stock market, the role of human brokers has declined in favour of the electronic business.
  • Commercial Banks: major commercial banks buy and sell foreign currencies directly through direct access to the interbank market.
    Small banks and commercial customers trade directly with large commercial banks: they have an indirect access to the interbank market on the back of credit lines with banking system.

The major players in the forward market can be categorized as:

  • Arbitrageurs: they act to take advantage of differences in interest rates among countries. They use forward contracts to eliminate the exchange risk in transferring their funds from one nation to another.
  • Traders: they use forward contracts to eliminate or to smooth FX risk of losses on export or import business deals that are denominated in foreign currencies.
  • Hedgers: usually international corporations engage in forward contracts to protect the domestic currency value of FX denominated assets (revenues) or liabilities (costs) on their balance sheet.
  • Speculators: they actively expose themselves to currency risk by buying or selling currencies forward in order to make a profit from FX fluctuations over a certain period of time.


  • FXCM, Forex Capital Markets
  • DailyFX: Forex Market News & Analysis
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