Market size and liquidity

Turnover of exchange-traded foreign exchange futures and options have grown rapidly in recent years, reaching $166 billion in April 2010 (double the turnover recorded in April 2007). Exchange-traded currency derivatives represent 4% of OTC foreign exchange turnover. Foreign exchange futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.

Most developed countries permit the trading of derivative products (like futures and options on futures) on their exchanges. Some governments of emerging economies do not allow foreign exchange derivative products on their exchanges because they have capital controls. Countries such as Korea, South Africa, and India have established currency futures exchanges, despite having some capital controls. All these developed countries already have fully convertible capital accounts. The use of derivatives is growing in many emerging economies.

The biggest geographic trading center is the United Kingdom, primarily London, which according to estimates has increased its share of global turnover in traditional transactions from 34.6% in April 2007 to 36.7% in April 2010. Foreign exchange is an over-the-counter market where brokers/dealers negotiate directly with one another, so there is no central exchange or clearing house. For instance, when the International Monetary Fund calculates the value of its Special Drawing Rights every day, they use the London market prices at noon that day. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price.

The growth of electronic execution and the diverse selection of execution venues have lowered transaction costs, increased market liquidity, and attracted greater participation from many customer types. Foreign exchange trading increased by 20% between April 2007 and April 2010 and has more than doubled since 2004.The increase in turnover is due to a number of factors: the growing importance of foreign exchange as an asset class, the increased trading activity of high-frequency traders, and the emergence of retail investors as an important market segment. In particular, electronic trading via online portals has made it easier for retail traders to trade in the foreign exchange market. By 2010, retail trading is estimated to account for up to 10% of spot turnover, or $150 billion per day (see retail foreign exchange platform).

The foreign exchange market is the most liquid financial market in the world. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. Of this $3.98 trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in outright forwards, swaps and other derivatives.