Foreign exchange is traded essentially
in two distinctive ways. Over an organized exchange and 'over the
counter'. Exchange traded foreign exchange represents a very small portion of the total currency market. The great majority of foreign exchange deals are traded between banks and other currency market participants 'over the counter'.
1. Exchange traded currencies
In the case of an organized exchange like the Chicago Mercantile
exchange (CME) in the US, standardized currency contract sizes
that represent a certain monetary value are traded in the International
money market (IMM). A central clearing house organizes matching
of transactions between counter-parties. There are various disadvantages
to trading currency futures as outlined in the chapter Advantages
of trading FX.
2. Currency market
In comparison the over the counter market is traded around the world by a multitude of participants and price quality, reputation and trading conditions determine who a participant wishes to trade with. It is probably the most competitive market in the world and brokers like ACM must insure they live up to the highest standards of service and be compliant with market standards and practices if they want to acquire new customers and retain their existing ones. In 2007 a survey under the auspices of the Bank for International Settlements (BIS), global turnover of reporting dealers was estimated at about USD 3.2 trillion per day, representing a more than 60% increase since 2004.
Among the various financial centers around the world, the largest amount of foreign exchange trading takes place in the United Kingdom, even though that nation's currency, the British pound is less widely traded in the currency market than several others. As shown in the graph underneath, the United Kingdom accounts for about 34 percent of the global total; the United States ranks a distant second with about 17 percent, Switzerland is third with 6.1 percent, whereas Japan is only fourth with 6 percent.
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