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Foreign Currency Trading
Foreign trading is done in a foreign exchange market where one type of is exchanged or traded for another type of currency. trading is regarded as the largest financial market in the world. Players participating in trading within a FOREX market are the large banks like Citibank and Deutsche bank, nationalized and government banks, multinational firms, financial institutions and investment companies. The daily volume of the present global forex market is around US $3 trillion. Given the huge size and high liquidity of the markets worldwide, small players cannot easily do trading in a FOREX market.
Trading within a market is done in levels, where a player in a level doesn’t have access to other levels. The top level is the inter-bank market comprised of large banks like Deutsche bank, Citibank, Union bank of Switzerland and other banks across the world. The top ten players sweep off 70% of the total business done in the FOREX trading. In the top level, the difference between the bid and ask price known as Spread is very minute and is not available to other circles outside. As the levels descend, the difference increases mainly due to the volumes traded. Level of access for a player is determined by the ‘line’, the money with which one is trading. trading has almost doubled today since 2001 mainly because of the recongnition of FOREX trading as an investment and asset class and also an increase in the fund management assets of pension funds and hedge funds.
Commercial companies do trading mainly to pay their customers for their good or services and trade in small amounts compared to large banks. Investment management companies do trading to manage the pension or endowment or investment portfolio of their customers and are usually in large amounts, because they have to invest in foreign equities for which they need to exchange to buy those equities.
Let us see the typical characteristics of a FOREX trading. Due to the over-the-counter nature,
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the markets doesn’t trade in a single dollar or a euro rate, but rather a different number of rate applicable only to that particular market. There is no central house or hub or exchange or clearing house as traders deal directly with each due to this OTC nature. Usually these rates are close to each other; otherwise special traders called arbitrageurs take advantage of the difference in the rates and make huge profits out of it. Main trading centers across the world are in London, New york, Tokyo and Singapore. As the time zones differ, trading is done almost 24 hours a day. Fluctuations in the rate occur due to changes in the inflation, interest rates of banks, GDP growth, trade deficits and surpluses, cross-border M&A deals, economic situations, financial health and some other macro economic conditions.
Currencies are traded for each other and each pair of currencies is a separate and unique product and usually denoted by XXX/YYY. During creation, the XXX is known as base is the strongest and YYY the weakest. Today the US dollar is in almost 88% of the transactions followed by Euro (37%) and yen. The most traded pairs are Euro/US dollar, US dollar/Yen and GB pound/US dollar.
Trading is done through different kinds of instruments like derivatives, spot transactions, forward transactions, options and futures, swaps and exchange-traded funds. speculation is done by speculators who do an important job of transferring the risk from those who can’t bear to those who can bear it. Speculators always face controversies due to the risk they take up. trading is affected by some factors like economic and financial situations, political scenarios, and other psychological issues related to the markets.
For more free forex education, a forex trading course and some FREE PDF's on Currency Trading Basics for success visit our website at: http://forex.books-summary.com
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Forex Market - Sponsored Link
Ad - Forex-Market.Insights1.com Jul 4 2009 11:54AM GMT
FOREIGN EXCHANGE RATES
Sabah Jul 4 2009 11:54AM GMT
Forex reserve up $932 mn
Business Standard India Jul 4 2009 9:47AM GMT
Dollar gains on yen
New Age Bangladesh Jul 4 2009 9:46AM GMT
Forex reserve to cross $7 billion after ACU payment
New Age Bangladesh Jul 4 2009 9:45AM GMT
A false dawn for the dollar
Russia Today Jul 4 2009 9:34AM GMT
Japan: Major nations should back dollar
CHINAdaily Jul 4 2009 9:28AM GMT
FOREX: Ringgit To Remain Rangebound Against US Dollar
Bernama Jul 4 2009 8:55AM GMT
More Newsday Green Dollar$ winners
Trinidad and Tobago's Newsday Jul 4 2009 8:53AM GMT
Street carnival in Phu Yen opens
VietNamNet Bridge Jul 4 2009 8:26AM GMT
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IT Business Net Jul 4 2009 7:50AM GMT
Major nations should back dollar as key currency
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The West Online Jul 4 2009 7:44AM GMT
Forex reserves increase by $932 million
Hindu Business Line Jul 4 2009 7:40AM GMT
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Express Buzz Jul 4 2009 7:35AM GMT
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CHINAdaily Jul 4 2009 6:09AM GMT
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ABS-CBN News Jul 4 2009 6:06AM GMT
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Zaman Jul 4 2009 6:01AM GMT
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Bogota Free Planet Jul 4 2009 5:31AM GMT
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