The forex market has a number of unique characteristics. First, it is not centralized — there is no physical exchange or clearinghouse through which all currency trades are executed and processed. Each forex trade is essentially a private transaction between two parties.

Second, spot currency trading is not regulated, at least not in the same way as the stock and futures markets. Banks have to report some limited gross and net positions to the Federal Reserve and the Fed has issued some “letters” regarding practices of which it disapproves, but that’s about it (see “Judge puts CFTC on the spot,” p. 12). Third, the interbank market operates virtually around the clock (except for weekends), moving around the globe with the sun, from financial center to financial center; as trading ends in one location it picks up in the next. (It actually gets a small rest — about two hours — between the time U.S. West Coast banks close and the Sydney, Australia, markets open.) Finally, the leverage available in the forex market is incredibly high. Banks that trade with one another actually have infinite leverage, because they trade on pre-established credit lines with no initial margin or other deposit required. No cash changes hands until settlement.

Even for retail traders, leverage in the forex market often exceeds that which is prevalent in the futures market, commonly giving retail currency traders 50:1 or as much as 200:1 buying power.