Forex Market

Forex (Foreign Exchange market) is an inter-bank market that took shape in 1971 when global trade shifted from fixed exchange rates to floating ones. Transactions among forex market agents involving exchange of specified sums of money in a currency unit of any given nation for currency of another nation at an agreed rate as of any specified date. During exchange, the exchange rate of one currency to another currency is determined simply: by supply and demand – exchange to which both parties agree. The foreign exchange market determines the relative values of different currencies.

The primary purpose of the foreign exchange in forex market is to assist international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import Japan goods and pay Yen Japan, even though the business's income is in US dollars. It also supports speculation, and facilitates the carry trade. A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate.

The scope of transactions in the global currency market is constantly growing, which is due to development of international trade and abolition of currency restrictions in many nations. in 2007 was recorded daily trading volume in the forex market to reach US $ 3.900.000.000.000. With high trading volumes and the highest rates of information technology development in the last two decades, the market itself changed beyond recognition. Forex transactions that used to be the privilege of the biggest monopolist banks not so long ago are now publicly accessible thanks to e-commerce systems.

Typical attractive the forex market:

Liquidity: the market operates the enormous money supply and gives absolute freedom in opening or closing a position in the current market quotation. High liquidity is a powerful magnet for any investor, because it gives him or her the freedom to open or to close a position of any size whatever.

Promptness: with a 24-hour work schedule, participants in the FOREX market need not wait to respond to any given event, as is the case in many markets.

Availability: a possibility to trade round-the-clock; a market participant need not wait to respond to any given event;

Flexible regulation of the trade arrangement system: a position may be opened for a pre-determined period of time in the FOREX market, at the investor’s discretion, which enables to plan the timing of one’s future activity in advance;

Value: the Forex market has traditionally incurred no service charges, except for the natural bid/ask market spread between the supply and the demand price;

One-valued Quotations: with high market liquidity, most sales may be carried out at the uniform market price, thus enabling to avoid the instability problem existing with futures and other forex investments where limited quantities of currency only can be sold concurrently and at a specified price;

Market Trend: currency moves in a quite specific direction that can be tracked for rather a long period of time. Each particular currency demonstrates its own typical temporary changes, which presents investment managers with the opportunities to manipulate in the forex market;

Margin: the credit “leverage” (margin) in the forex market is only determined by an agreement between a customer and the bank or the brokerage house that pushes it to the market and is normally equal to 1:100. That means that, upon making a $1,000 pledge, a customer can enter into transactions for an amount equivalent to $100,000. It is such extensive credit “leverages”, in conjunction with highly variable currency quotations, which makes this market highly profitable but also highly risky.


Source : wikipedia and fxmarket