Understanding the Forex Market

The term forex stands for foreign exchange which also pertains to the currency market. It is an OTC or over-the-market worldwide marketplace which regulates the trade rate for different currencies around the globe. Those who are involved in the market are able to sell, buy, trade and speculate on the currencies.

Markets that make up the forex includes forex dealers, banks, investment firms, central banks, commercial companies, investors, hedge funds, and retail forex dealers.

The Basics of Forex Market

The forex market – also recognized as FX, foreign exchange, or currency market – was one of the financial markets that are originally formed to organize the increasing world economy. Foreign exchange is by far the largest currency market around the world, in terms of the trading volume. Aside from offering a place to buy, sell, exchange and speculate currencies, the currency market also lets conversion of currency for international exchange investments and settlements.

According to a bank owned by central banks, which is the BIS or Bank of International Settlements, forex trading markets had an average of $6.6 trillion daily in April 2019.

Currencies are always exchanged in pairs, thus the value of one of the currencies in a certain pair is relative to the other’s value. This identifies how much one country can buy the other country’s currency. Having this relationship established for the world markets is the key function of forex trading. This also significantly increases liquidity in all other currency markets, which is vital to overall constancy.

The price of a currency of a certain country relies on whether it is a fixed float or a free float. Currencies that are free- floating are that whose comparative value is identified by the free market forces, like the supply and demand relationships.  A fixed float is where a governing body of a country establishes the relative value of its currency to the other currencies, usually by gauging it to some standard. Currencies that are free- floating include the Japanese yen, US dollar, and British pound. While, the examples of currencies that are fixed floating include the Indian Rupee and the Chinese Yuan.

One of the most distinctive features of the foreign exchange market is that it is composed of a worldwide network of financial centers that performs 24 hours a day which only closes on weekends. As one main forex hub ends, another hub from a different part around the globe remains open for business. This amplifies the available liquidity in financial markets, which adds to its pleas the biggest asset class accessible to the investors.

The Benefits Of Forex Market

There are some main features that make forex trading different from other markets like the stock. Forex market has fewer rules which means that investors are not held to the strict regulations of the markets. Another thing is that investors don’t have to pay commissions or fees which you would in other markets. The Forex market is open 24 hours daily, thus it is beneficial for you to trade any time you are convenient to do so. Lastly, if you are anxious about the rewards and risks, you can get in and out whenever you desire, and buy currencies as much as you can afford based on the balance on your account and the rules for leverage of your broker.