Foreign Exchange Market: Features, Functions, Benefits
What are the features of foreign exchange market? Where is the foreign exchange market located? Many of us do hear of such things as forex and currency market, at one point or the other, but doesn’t know what they denote. Here now, we are going to get them treated adequately.
Foreign Exchange Market Definition
What is a foreign exchange market? The Foreign Exchange Market (also known as Forex, currency market, or just FX) is actually a global decentralized market that is meant for the sole purpose of trading currencies. And yes, it includes all aspects of buying, selling, and also exchanging currencies at current (or even determined) prices.
Overview of foreign exchange market
When we talk about volume of foreign exchange market trading, of course, it is the largest market in the world. Again, the main participants in the Forex market are actually larger international banks. It is on record that many financial centers all over the world are the ones functioning as anchors of trading between a wide range of many forms of sellers and buyers. This is done around the clock, except of course, on weekends.
However, we need to take note that experts claim that the foreign exchange market does not determine the relative values of different currencies. But in the same vein, they are said to sets the current market price of the value of one currency as demanded against another.
How Does Foreign Market Exchange Works?
We all need know that the foreign exchange currency market works through financial institutions. And again, it also operates on several levels.
Now, in the ‘behind’, banks will turn to dealers (a smaller number of financial firms) that are known to be actively involved in large quantities of foreign exchange trading. Then, the fact remains that most foreign exchange dealers are actually banks. And for educational purpose, we should know that what we can call behind the scenes market is sometimes called the interbank market.
In the foreign exchange market, trades between foreign exchange dealers can actually be very large. In fact, they are known to be involving hundreds of millions of dollars.
Benefits and Functions of Foreign Exchange Market
Transactions in foreign exchange market
International trade and investments is assisted by the foreign exchange market, in terms of enabling currency conversion. Even though its income is in dollars, it permits a business in the United State of America to import goods from European Union member states and pay Euros. And apart from that, it is also known to support direct speculation and evaluation that are duly relative to the value of currencies.
Now in a typical foreign exchange transaction, a party will purchase some quantity of one currency by paying with some quantity of another currency. And according to reports, what we can say to be the modern foreign exchange market, is said to began forming during the 1970s (that is after three decades of government restrictions on foreign exchange transactions, when countries are said to gradually switched to floating foreign exchange market rates from the previous exchange rate regime- which is said to remained fixed as per the Bretton Woods system).
Foreign Exchange Spot Market
Spot is one the foreign exchange market instruments. Spot trading is also regarded as one of the most common types of Forex Trading. And a spot transaction is simply a two-day delivery transaction, as opposed to the futures contracts that are normally three months. However, there is exception in spot transaction in the case of trades between currencies such as the US dollar, the Turkish Lira, the euro, the Canadian dollar, and the Russian ruble (they settle the next business day).
Basic characteristics of this trade are that it represents a direct exchange between two currencies; it has the shortest time frame; it involves cash rather than a contract; and also, interest is not included in the agreed-upon transaction.
Forex Exchange Market Signals
Forex signals (known as forex trade alerts) are trade strategies that are provided by either market analysts or experienced traders.
The signals are known to be often charged a premium fee for. And after access, can then be copied or replicated by a trader to his/her own live account. These forex signal products are packaged as either alerts that are delivered to a user’s inbox or a user’s sms. Also, the forex signal products can be installed to a trader’s trading platforms.
Also, something known as algorithmic trading has become very popular in recent years. With this, foreign exchange users can programme to place trades on for them following a set of previously established guidelines. With that, the need to sit and monitor the markets continuously is reduced.