The foreign exchange is a currency market which is global. It can also be defined as Worldwide decentralized financial market that offers a platform to trading currencies. Financial centre in the world function as a support of trading among the various types of buyers and sellers form all over the world. This market is the used to determine the relative values of different currencies of the economies of the world. It enables conversion of currencies, international trade and investment through the conversion of currencies. For example, it facilitates international companies to import and export goods of trade from one part of the world to another. Hence this market can be used to enhance business and the economies of the world.
Transactions in this market occur through purchases, for example a person or company can decide to purchase a certain quantity of currency by paying a certain quantity of the other currency in the transaction. The market is governed by Bretton Wood System is the kind of monetary management that is used in the transactions. Countries have switched to the floating exchange rates from the previous exchange rate regime.
What is the ‘Foreign Exchange Market’
The foreign exchange market is the market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is considered the largest financial market in the world.
BREAKING DOWN ‘Foreign Exchange Market’
The foreign exchange market – also called forex, FX, or currency market – trades currencies. Aside from providing a floor for the buying, selling, exchanging and speculation of currencies, the forex market also enables currency conversion for international trade and investments.
This market is very unique because of various characteristics. One of the components of this market is the huge trading volume. It represents the largest asset class in the world and leads in liquidity. The market has a character of geographical dispersion. This is because the market involves all countries in the world. This facilitates in diversification of the market to greater height. Different ideas are incorporated making the market even stronger due to harmonisation of the different protocols of carrying out business in the world. It offers a continuous operation all day except during the weekends. Hence business people can carry out business any time of the day as may be necessary.
Being the world’s largest financial market, the foreign exchange (or forex) market offers unmatched benefits and advantages to the prospective investor. With superior liquidity and leverage compared to stocks and futures markets, the forex market is arguably the best financial investment you can find. What makes the forex market an excellent financial market? The characteristics that make the forex market a good one are lower trading costs, excellent transparency, superior liquidity and very strong market trends.
LOWER TRADING COSTS
Ask anyone dealing in stocks and they will tell you that they have to shell thousands of dollars to get started. Not so with the forex market. With just a few hundred dollars (often $250 or less), you can open a mini forex account and start trading! The lower trading costs in the forex market has made it possible for even small, individual investors to make decent profits from forex trading. With lower costs, the possible losses are also much lower. You will discover that forex trading usually has no commission fees unlike in other investments. The costs of forex trading are limited to the spread or the difference between the selling and buying prices for a particular currency pair.
Difference in time zones is favoured by the continuous operation nature of the market. Various factors influence the market, e.g. inflation affects the value of various currencies in the world. It has a negative impact on the business increasing the cost of operation of business. The market has low margins of relative profit compared to the other markets that deal with fixed income. This is a positive attribute that promotes success of the business. It also uses leverage to enhance profit and loss margins. This is done in respect to the account size in question.
Knowing the best market hours is pretty critical for successful trading. Despite the fact that the currency market is open 24h a day, there are indeed specific times when experienced traders trade and when it is better to avoid trading. If you are interested to see which specific hours in your time zone can bring the highest potential gains then you can download the FREE mobile application Forex Hero and check the section Golden Hours.