The foreign exchange market or as you might know it, FX, is a global decentralized market that specializes in the exchange of currencies (one foreign currency to another). This market has a predominant authority over the Forex rates for every currency involved in the market as it does not only involve buying but also selling of different currencies at a current rate.
Characteristics of Forex market
Foreign exchange market is quite different due to the following features:
- The market has a wide geopolitical spread. It is available all around the world and it does not only involve private individuals but also large corporate firms and national central banks.
- The volume of trade on the market is quite colossal and this is expected as it is the biggest market in the world. This predominantly shows that it has high liquidity.
- The market has its own unique mode of operation and availability. It is available for the entire day for all the 5 working days with exception to weekends.
- The margin of profit on this market is quite low when compared with other markets which have fixed incomes. However, large profit is still made on the market.
- The market is characterized with a large number of factors that affect the rates of foreign exchange of currencies.
- The market makes use of leverage to enhance profit and life margins and this is done with regards to the size of the account.
Extent of Forex market
The Forex market is the market with the highest liquidity worldwide. It features institutional investors, financial institutions, governments, commercial corporations, currency speculators, private individuals, commercial banks and central banks.
The mean turnover of the market for a day increased by a large margin; from $1.9 trillion to about $6.6 trillion in about half a decade; $3.2 trillion from Forex swaps; $2 trillion from spot transactions or exchanges; $1 trillion from outright forwards; $294 billion from options and other items; and $108 billion from currency swaps.
The increase in turnover is dependent on a lot of contributions such as the improved trading activity of high frequency traders; the increase in electronic execution of trade; improved market liquidity; increasing importance of Forex as an asset class; sprouting of retail investors as a vital market section;and vast choice of execution venues or platforms which has decreased transaction rate. A couple of these factors have in one way or the other added to the increased participation which has significantly improved trading turnover.
Foreign exchange is basically a decentralized market where brokers negotiate one on one with one another on the price of the currency rate; hence there’s no central exchange where a single individual or corporation benefits marginally from the trades made.
Forex has a wide availability all around the globe and can be easily assessed from any corner in the world. The convenient access of the market has made it a very impressive market in the trading universe as many individuals are trading on the market on the daily basis. Newbies who are interested in trading on the market can easily do so by getting in touch with best Forex brokers.