The foreign exchange market is a decent global decentralized market for trading of all countries’ currencies. The main client in this market is the big international banks. The foreign exchange market determines the relative values of different currencies.
The forex market works on financial institutions, and it operates on different type of several levels. Beside of that, bank turn to a financial firm that known as a dealers which are involved in large number of foreign exchange market trading. In forex market, Banks are the most foreign exchange market dealers. For this reason, sometime it also called “interbank market”. Some insurance companies and financial firms are involving in this part.
The financial exchange market maintains international trade and investment by controlling currency conversion. For example, it also give permits a business in the United States to import goods from the European Union member states like United Kingdom, and pay euros, even though its income is in United States dollars. In foreign exchange market, it also supports direct speculation in the value of currencies, and the carry trade between two currencies.
In a typical forex market transaction, a big business man or corporate parties are purchases some amount of one currency by paying some amount of another currency. The modern foreign exchange market began to start in 1970. After 30 years, Governments created restrictions in foreign exchange market transactions. After that, when countries were gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The foreign exchange market is acceptable for these kinds of following characteristics:
– Its huge trading capacity representing the largest asset class in the world.
– Its geographical dispersion around the word.
– It is continuous operation means 24 hours a day except weekends.
– The different of factors that affect exchange rates.
– The low margins profit compared with other markets of fixed income.
– The use of leverage to enhance profit and loss margins and with respect to account size.
The foreign exchange market is the most appropriate financial market in the world. Many traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. The foreign exchange market is continuously growing in every moment. Turnover of exchange traded foreign exchange market futures and options have grown rapidly in recent years, reaching Thousands of billion.
Foreign exchange market is an over-the-counter market where brokers/dealers negotiate openly with one another, so there is no central exchange. The biggest trading center is the United Kingdom, primarily London, which according to the City in UK estimates has increased its share of global turnover in traditional transactions is increasing rapidly. Due to London’s dominance in the foreign exchange market, a particular currency’s quoted price is usually the London market price.
The foreign exchange market is divided into levels of access, unlike in a stock market. In foreign exchange market, interbank market is in the top which is made up of the big commercial banks and securities dealers. Central banks also participate in the foreign exchange market to align currencies to their economic needs.