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Foreign Exchange: FX Fundamentals

Currencies are traded in a decentralised 24-hour marketplace made by bank dealers in an over-the-counter market.

The major financial centres span the globe, with the trading day starting in the east and moving west.

The legacy of Britain’s historic dominance of international trade has placed the City of London at the centre of the world’s time zones. And, beginning in the 1960s, the big American banks moved into the City to operate offshore USD business, reinforcing London’s historic dominance. London is still the world’s biggest FX centre.

New York is the centre of domestic US finance, making it the second biggest FX trading hub.

The other major financial centres are more regionally-oriented. Frankfurt and Paris’ share will drop considerably with the advent of the euro, as these two centres have built up their business on the DEM/FRF ticket which no longer exists. Other FX centres are locally focused.

Trading books

Increasingly, international banks run only one global trading book which moves between dealers operating in trading hubs across time-zones.

Prices in the major currencies become competitive when Tokyo and London are both live, with liquidity at maximum when London and New York are both pricing.

Activity falls after 15.00 hrs in New York (Eastern Standard Time). But there will always be a marketmaking desk open to make a quote, wherever you are, day or night.


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