Forex FX or foreign exchange market refers to the international currency trading financial market. It has been developed as an instrument that supports global transactions and investment by allowing financial and commercial actors to trade capital and goods through exchanging currencies.
This way, imports, exports as well as capital investments are facilitated by allowing interested parties to deal in the currency of the targeted market.
The FX is an over-the-counter market that is based on floating exchange rates. A currency’s value is allowed, in this case, to be established based on market demand.
A typical Forex transaction will involve selling one currency against another in currency pairs, with traders including major banks, central banks, investment agencies, governments, corporations, currency speculators and various other financial institutions.
Most traders will center the majority of their transactions on the well established, most liquid currency pairs which include US Dollar, Euro, Japanese Yen, British Pound or Swiss Franc.
With a focus shift towards the use of electronic means and an increased access to Internet and trading software platforms, retail Forex under the form of online trading has also gradually increased in size. Retail FX volumes have been estimated to hold approximately 5% of the overall global market, or a total of about 200 billion USD in daily transactions.
Trading is allowed 24 hours a day, with the exception of weekends. The transactions start at 5 PM ET on Sunday, with the Sydney trading center being the first to open, and close with the New York market at 5 PM ET on Friday. With an approximate daily turnover of 4 trillion USD, Forex is the financial market with the highest transaction volume in the world. This in turn translates into high levels of liquidity for a financial market.
Some of the most used financial instruments in FX transactions are spot transactions, which are the the basic direct methods for trading currencies; forward transactions, where actual currency will be exchanged on a specific date in the future based on an exchange rates set at the moment the deal is agreed upon; as well as swap, which represents the most wide spread form of forward contracts and involves two parties that agree to exchange currencies for a given period of time under the clause that they will reverse the process at a determined date in the future.Powered by Sidelines