Lesson 1 : Market Size & Liquidity

The foreign exchange market is the largest & most liquid financial market in the world. Traders include giant banks, central banks, funds speculators, corporations, governments, & other financial institutions. The average every day volume in the global foreign exchange & related markets is continuously growing. Every day turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. [2] Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 & 2008.[3]

Of the $3.98 trillion every day global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second & third places respectively, trading in New York accounted for 16.6%, & Tokyo accounted for 6.0%.[4] In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange & are actively traded relative to most other futures contracts.

Several other developed countries also permit the trading of FX derivative products (like funds futures & options on funds futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India—[1]; [2]) have already successfully experimented with the funds futures exchanges, despite having some controls on the capital account.