Forex Trading Currency Exchange Market – Forex Trading – Introduction:
The Forex market is a place in which various players can take part in buying, selling, exchange and figure out the currencies. The forex market is associated with large international banks, central banks, commercial companies, central banks, hedge funds, investment management companies, retail forex brokers and various investors.
The place (or) market of currency is treated to be the biggest market accomplished with a daily turnover of $5 trillion and it comprises of many people and huge currency, which is greater than futures and equity markets together. The foreign exchange market is not governed or ruled by a single market exchange, it consists of a universal network of computers and brokers all around the world.
Forex Market Trade Via Online Platforms
The forex market is formed up of two groups. One is ‘interbank market’ and the other is ‘over-the-counter (OTC) market’. The interbank market is an online source through which many banks trade currencies for 24 hours a day, five days a week for doing things like hedging, balance sheet adjustments etc., on account of clients. The ‘Over the counter’ market is the place at which the individuals trade via brokers and online platforms. Brokers operate as a bridge between intermediaries for facilitating trades by giving access to the clients for 24-hours.
The Foreign exchange market helps international trade and investments by allowing currency conversion. For example, it allows a business in the United States of America to import goods from European states, specially ‘Eurozone members’ and pay in Euros, however its income is in US dollars.
Generally, in a foreign exchange transaction, an individual purchases little quantity of one currency by paying with a little quantity of different.
The modernized foreign exchange market began its formation during 1970’s. This was continued for three decades of government limitations on foreign exchange transactions under “Bretton Woods System’ of monetary management, which fixed out the rules for commercial and financial relations among the world’s major industrial states after World War II. Countries slowly converted to floating exchange rates from the previous rate regime, which was kept fixed as per ‘Bretton Woods System’.
Forex market – operating hours:
Usually operating hours of forex market are from Monday morning in Asia to Friday afternoon in New York. The forex market is a market which operates 24-hour, that means it does not close overnight. It varies from market to market such as bonds, commodities and equities, which closes for a duration of time, mostly later afternoon in the city of New York. Certain market currencies close for a certain extent of time during the day of trading.
Usually, whatever transactions are made on the forex market consists of the concurrent purchase and sale of dual currencies. This type of transactions is known as Currency pairs and these include a base currency and a quote currency. Quote currency is also named as ‘Counter’ currency and it is the second currency which appears in a forex pair.
Forex market – biggest players:
The most traded currency in the forex market is US dollar, which is occupies around 85% of the all trades. Euro is the second currency which occupies 39% of all the currency trades and Japanese Yen is the third currency it takes 19% weightage of the entire trades.
As per the survey conducted by Euromoney in 2015, Citigroup and Deutsche Bank were considered to be the largest banks in the forex market, which involves more than 30% of the entire global market share.
Features of Forex market:
Below are the unique features of the foreign exchange market –
• It operates regularly for 24 hours except on weekends which trades from 22:00 GMT on Sunday (Sydney) until 22:00 GMT on Friday (New York) – [GMT = Greenwich Mean Time]
• Its exchange rates are affected due to its various factors
• It has huge trading volume which represents the highest asset class in the entire world which leads to high liquidity
• It has become unique because of its geographical distribution
• It has very low margin related to the profits when compared with the fixed income market
As per BIS (Bank for International Settlements – International Finance Institution), the initial results of Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives market in 2016 states that foreign exchange markets have a turnover of $5.09 trillion per daily in ,April 2016. This value has declined from 2013, April month to $5.4 trillion but was up again in April 2010 to $4.0 trillion. Based on the measurement by the value, foreign exchange swaps were traded greater than any other financial instruments at $2.4 trillion per day in April 2016 followed by immediate trading at $1.7trillion.
The break-down of $5.09 trillion is as follows:
• $1.654 billion in immediate/on-location transactions
• $700 billion in entire forwards
• $2.383 trillion in forex swap (FX swap)
• $96 billion cross-currency swap (XCS)
• $254 billion in foreign exchange option and other products
Generally, foreign traders have many tremendous benefits, however at the same timeespecially they also involve unique risks. It’s essential that all the traders understand the market before they attempt to invest and devote their time and assets.