Definition of FOREX (Foreign Exchange) Market
The foreign exchange (currency or forex) market exists wherever one currency is traded for another. Forex market is the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. Retail traders (small speculators) are a small part of this market and may only participate indirectly through forex brokers or market makers like PrimeFin or banks.
The Foreign Exchange & Trading Market
With international trade, the currency of one country must be exchanged for that of another for the settlement of a transaction. Institutions and corporations in the international marketplace oftentimes need a certain currency to complete a deal, or to guard themselves against the effects of currency swings and rate changes. This system involving the exchange of different currencies has created the Foreign Exchange market, or FOREX, or FX. and more correctly known as the Global Interbank Currency Exchange Market.
Like stocks, gold, and real estate investments, Foreign Exchange has become a very important tool for the investment community. Forex trading provides certain additional advantages:
You can enjoy the benefits of leverage on contracts up to fifty times your margin deposit. That is, with 1% of the absolute value of contracts, you can enter the largest marketplace in the world. As long as you are able to maintain your margin requirements on the full contract value, you can remain indefinitely in the market.
Being the largest market in the world with over $1.6 Trillion bought and sold daily, a huge volume of transactions is readily executed and cleared. Unlike futures or the stock market(learn how to trade shares), there is never a lack of buyers or sellers on the forex market. Therefore, it gives the investor the prerogative to open or close a position at will.
Forex quotes are based on spot prices regardless of the transaction size. Prices are quoted on a net basis.
Forex trade orders are executed and confirmed online or manually via a recorded phone call. Customers know immediately the rate at which the order is executed. Confirmed orders will always receive a single price execution.
Forex system contracts opened can be rolled over daily for an indefinite period subject to roll-over fees.
Investors involved in international trade can minimize their currency exposure risks by using a Forex trading system.
Operation Of The Forex Market
The International Forex Market is a non-physical market and has no central exchange. The major participants in this foreign exchange trading market are Central Banks, prime multinational banks, large corporations, brokerage houses, and individual investors. Forex agents offer various services to investors, including financial analysis, information gathering and market situation updates. Most transactions are conducted via the telephone or through online forex trading systems.
The high liquidity in the forex market is due to the enormous volume of transactions generated by the primary market called the “interbank market” where banks, large financial institutions, insurance companies, and other large corporations deal with each other in huge quantities to manage their own currency risks. The secondary over-the-counter market, where retail clients participate in forex transactions, has benefited from this liquidity provided by the big institutions.