The Foreign exchange market with a daily turnover of around $3.98 trillion is the biggest financial market in the world. Forex market exists for trading of currency. It’s an international market and operates for 24 hours a day, 5 days a week. Investors and traders are allowed to trade currencies around the world. Different financial centres around the world function as the anchors of trading among buyers and sellers. The main aim of the currency exchange is to assist international trade and investment.
Foreign Exchange permits borrowers to borrow low yielding currencies and invest in high yielding currencies. In Forex transaction, a party purchases a quantity of one currency by paying the required trading rate in another currency. Often people relate this market to stocks but unlike that, in this market the main game is played by “Currencies”. Here traders buy and sell money all at the same time. The trades are done in pairs. The main pairs traded in the market are Euro/JPN, USD/CHF, and CAD/USD. In this scenario not only big corporations and banks take part in the trade, there are various individuals who make a living out of trading here.
Banks, International companies, Central banks, Forex fixating, Investment management firms are the few organisation which play key role in this market. Large banks trade billions of dollars daily. Some of this trading is done on behalf of customers. An important part of this trading comes from various international financial companies seeking foreign currencies to pay for their goods and services. Central banks try to control the money supply, inflation and interest rates in conjunction with the market. The daily exchange rate fixed by the national bank is known as Forex fixing. Banks, dealers and online foreign exchange traders use this exchange rate to evaluate behaviour of their invested currency. Investment management firms use the foreign exchange to facilitate transaction. Money transfer companies perform high/low level transfers by economic migrants back to their home.
Forex is influenced by various factors comprising of mainly two categories: Fundamental and Technical. Fundamental factors refer to government policies, bank policies, natural disasters, and trader’s mood. A country’s economic situation depends on these factors. Technical analysis on the other hand, depends on the fundamental issues. Movement of market depends on data purely generated by the market, and this is termed as technical issue. A good trader must consider all of these risks and benefits before indulging in any kind of transaction.
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