The foreign exchange market which is otherwise called as Forex trade or currency market is a worldwide financial market for trading currencies. It is a decentralised market that functions all around the world. Except during the weekends the trade keeps on moving with so many buyers and sellers globally. The Forex market helps in understanding about the values of each countries currency.
Purpose of Forex market:
The main important purpose of Forex market is to help during the international trade. It helps the traders to convert from one currency to another during their business. Consider an example where the dealing is between the US and British. The US people can import British goods and pay those Pounds rather than paying in dollars.
The nest reason is that it helps in supporting Speculation. The investors can borrow low yielding currency and then invest in high yielding currency through which many competitions can be reduced.
During a Forex transaction, one party purchases goods of one currency and pay them in another currency. After the discovery of Forex, then came the modern Forex during the 1970's. During this period, many countries started switching to floating exchange rates.
Uniqueness of Foreign Exchange trade:
- This is mainly due to the geographical dispersion.
- Various factors that affect the exchange rates globally.
- The trading volume increases and due to this liquidity steeps high.
- The power it has to enhance the profit margins.
- It has very low margins of profit when compared to other markets in terms of fixed income.
- The Foreign Exchange market runs 24×7 except during the weekends.
From this uniqueness of Forex market, it has been considered as the ideal competition. As on April 2010, the average every day turnover is around $3.98 trillion. It shows a growth of approx 20% of the $3-21 trillion which is the daily turnover as on April 2007. With these improvements, some of the firms have given their average turnover as US $4 trillion.
Here is the $3098 trillion break-down:
- $475 billion during the outright forwards.
- $1.49 trillion in the spot transactions.
- $43 billion during the currency swaps.
- $1.765 trillion during the Forex swaps.
- $207 billion during the marketing of other products.
One of the most important markets is the “Spot market”. This term is given to the market as the trade is performed then and there and the market is sold on the spot. Some of the other trading markets are trading on the margin, Futures trading and the Forward outrights.
There are two main statistics of Forex trade. They are
- Technical analyses
- Fundamental analyses