Forex Exchange Blog

tunde asked:


What is FOREx all about?

The Forex market is a non-stop cash market where currencies of nations are traded, typically through brokers. Foreign currencies are constantly and simultaneously bought and sold across local and interntional markets and traders’ investments increase or decrease in value based upon currency movements of foreign exchange.Foreign exchange exists wherever one currency is traded for another. It is the largest financial market in the world,The average daily trade in the global forex and related markets currently is over US$ 7 trillion.

It is a 24-hour trading, 5 days a week with non-stop access to global Forex dealers. An enormous liquid market making it easy to trade most currencies. Volatile markets offering profit opportunities. Standard instruments for controlling risk exposure. The ability to profit in rising or falling markets. Leveraged trading with low margin requirements. Many options for zero commission trading.

Market size and liquidity



The foreign exchange market is unique because of

its trading volumes,

the extreme liquidity of the market,

the large number of, and variety of, traders in the market,

its geographical dispersion,

its long trading hours: 24 hours a day except on weekends (from 5pm EST on Sunday until 4pm EST Friday),

the variety of factors that affect exchange rates.

the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)

the use of leverage



Foreign exchange market turnover, 1988 - 2007, measured in billions of USD.

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the BIS, average daily turnover in traditional foreign exchange markets is estimated at $7.28 trillion. down as follows:

Market participants

Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference



CULBERSON

Justin Stewart asked:


Whenever one currency is traded for another on the global market, this normally involves forex — the foreign exchange market. It is usually referred to as the currency or FX market. It is the largest financial market in the world and involves currency trading on the following levels:

- Central banks

- Currency speculators

- Financial markets and institutions

- Governments

- Large banks

- Multi-national corporations

Over $3 trillion in trading is daily in the global forex and other related currency markets. Unlike the various stock exchanges, the forex exchange operates differently. In a stock market everybody has access to all the same pricing of the various stocks. With forex, it is divided up relevant to levels of access.

In addition to the $3.21 trillion traded daily at forex, it is estimated that another $2.1 trillion is traded in derivatives. Derivatives are another form of financial instrument and their value fluctuates depending on changes in variables that are globally related. Examples of derivatives are forwards, futures, options, and swaps. The primary function or purpose of a derivative is the reduction of risk for a speculating party.

The $3.21 trillion is broken down into the following four groups of transactions:

1. $1.714 trillion in forex swaps an OTC derivative with a short-term interest rate

2. $1.005 trillion in spot transactions purchasing one type of currency with another wherein it is done as immediate delivery rather than in the future

3. $362 billion in outright forwards an agreement between parties to purchase or sell various assets at a future point in time that is pre-agreed upon

4. $129 billion in estimated gaps in reporting

In 1972, the Chicago Mercantile Exchange introduced futures contracts that were forex-exchange traded into the existing mix of financial instruments. These are traded in much the same fashion as futures on the stock market commodities market. According to the Wall Street Journal, the volume forex futures transactions have grown rapidly since their introduction, and now equate to roughly 7% of the daily traded volume.

There are three key factors that directly affect currency trading:

1. economic factors

2. market psychology

3. political conditions

The bottom line is that, just like with anything that is bought, sold, or traded, the aspect of supply and demand rules supreme and is always what most significantly creates price fluctuations in any type of market. For the most part, one has to look at the global currency market as a gigantic melting pot, in that things are always changing and shifting, and never static. It is a mixture of numerous ever-changing events, with supply and demand factors constantly changing as well, therefore resulting in shifts of the pricing of one currency relative to another.

There is an ongoing controversy involving currency speculators, as they are the group primarily responsible for any effects on currency devaluations and national economies. On the other hand, there are those economists who insist that the speculators are one of the more important factors in that they perform the function of providing a market for what are called hedgers — hedging removes or even cancel risk in investments.



EYLES