What is Forex?
In its briefest description, Forex stands for the foreign exchange market. Forex allows business to convert one currency to another foreign currency. Unlike the stock market, the foreign exchange market is divided into tiers of access. The top tier is the inter-bank market which is essentially made up of the largest commercial and investment banks and securities dealers. The next tier is usually smaller banks, followed by large multi-national corporations, large hedge funds, and some FX market makers. The foreign exchange marketplace is traded between a wide range of different types of buyers and sellers 24 hours around the clock, with the exception of weekends.
Simplistic View for Understanding the Basics
The purpose of the foreign exchange market is to assist international trade and investment. It allows businesses to convert one currency to another foreign currency. Currencies are traded against one another. Each currency pair constitutes an individual trading product and is traditionally listed as XXX/YYY where XXX and YYY are the international three letter code of the currencies involved. The first currency XXX is the base currency that is quoted relative to the second currency YYY, called the counter currency. An example of a currency pair is EURUSD (Euro against the US Dollar). In simplest term, if you buy the EURUSD currency pair, you are speculating that the EUR will rise against the USD. If you sell the EURUSD currency pair, you are speculating that the EUR will fall against the USD.
Who Uses Foreign Exchanges?
Traders include large banks, central banks, corporations, governments, CTAs, hedge funds, financial institutions, and currency speculators. Pension funds, insurance companies, mutual funds and other institutional investors have also played an increasingly important role. Commercial and investment banks trade currencies as a service for their commercial banking, deposit and lending customers. They generally participate in the currency market for hedging and proprietary trading purposes. Investors and speculators trade currencies directly in order to benefit from movements in the currency exchange markets whether short term or long term movements. Businesses typically need to convert currencies when they conduct business outside their home country. For example, exporting goods to another country and receiving payment in the currency of that foreign country. The payment must typically be converted back in the home currency. Many businesses use hedging strategies to ensure they do not incur losses over time due to currency market fluctuations. Governments and central banks trade currencies to improve trading conditions or to intervene in an attempt to adjust economic or financial imbalances.
Why Investors are Drawn to the Forex Market?
The Forex market is unique because of the following…
– Trading volume results in market liquidity. Forex is the largest and most liquid financial market in the world
– Geographical dispersion
– Continuous operation: 24 hours a day except weekends
– The variety of factors that affect exchange rates such as geo-political conditions, economic factors, market psychology
– The low margins of relative profit compared with other markets of fixed income
– The use of leverage to enhance profit margins with respect to account size
For More Info please Visit : www.bevhillscap.com
The risk of trading foreign exchange can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.
Processing your request, Please wait....
