Forex millions of the trading transactions take place

Forex is the short and
modern name of Foreign Exchange. Forex some-times interchangeably are also
called or known as Currency Exchange. Foreign Exchange market (Forex Market) is
the market where participants of the market execute
the transactions like buying, selling and exchanging the currencies by
speculating the prices at the existing or prearranged rate.   On the basis of demand of one currency to
another, foreign exchange market sets the current price of the currency but it
does not determine the relative value of the underlying currency, such evaluation
depends on some other factors like
economic policies of the country, the political
situation in the country etc. Currency Exchange
rate fluctuations depend on actual
monetary as well as forecasted monetary flow by taking into account the changes
in gross domestic product, inflation, interest rate parity, monetary policies
of the country, news regarding major mergers of the companies and other
economic public releases. Foreign exchange markets include central
banks, investment houses, financial institutions and forex brokers and investors Forex markets are extremely
liquid in a sense that foreign currencies are traded over the counter among national/international
brokers and dealers directly without the involvement of any clearing house or the central exchange. This
type of trading sometimes also called retail foreign
exchange trading. Forex market is the largest financial market of the
world where millions of the trading transactions take place on daily basis and
approximately more than $5 trillion trading took place on every day. Forex
Market or the currency market is a worldwide decentralized or over the counter
market. Over the Counter (OTC) Market means, where the trading are take place
by the use of dealers network instead of a centralized exchange. Although there is the presence of major currency
trading exchanges in the world but still there is no consolidated or central
platform for the most of the foreign
currency trade. Because of over the
counter market environment, there are different interrelated marketplaces available for the trading of many currencies and instruments.
Trading of the currency took place consistently over the day, that trading
session end in one part of the world and then starts another part of the world,
rather than weekends.

In the forex market
currencies are traded in pairs that mean buying one currency and selling
another currency concurrently at the same time. A
currency pair comprises on two currencies i.e. base currency and counter or
quoted currency. Based currency valued in terms of other currency by using the
exchange rate. The base currency at all times equal to one.  In the case of currency pair EUR/USD = 1.2891.The
first currency i.e. EUR is the base currency and other currency i.e. USD is the
counter currency. The quote read as one (1) EUR is equal to USD 1.3651 or in
other words, € 1 is worth of $ 1.2891. A trader needs to spend $ 1.2891 for
buying the € 1. The ask/bid price, pip
and spread are the key terms that are used in the forex market. The Ask price
is the price on which an investor agrees to buy a currency or it is the price
on which the market or seller agrees to sell the currency to the investor. The
Bid price is a price on which the investor sells a particular currency or the market/buyer agrees to pay for that currency to
the seller. Point in Percentage (PIP) represents a change in the price of a
currency pair due to exchange rates. A pip
denotes to a fourth decimal in the amount
of a currency. One pip symbolizes as 0.0001. Normally, currency pairs
make an exhibition of four decimal places while only in the case of the
Japanese yen currency pair shows just two decimals. PIP sometimes also called
Price Interest Point (PIP). Forex spread is the
transaction cost of a trading for the forex trader and the commission or
service charges for a broker or the trading platform. It is the difference
between the Bid and Asks price of a
trading commodity or a currency pair.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

In
forex trading the term leverage is most frequently used. Leverage denotes the
amount of loan given to the investor by the broker or the trading platform. The
ratio of loan varies from broker to broker. In forex trading, leverage ratio
ranges between 1: 40 to 1:200 depending upon the leverage policy of the trading
platform. That means on every $1 investment a trader can enhance the trading
bid up to $40 or $200. The facility of leverage is very useful for the traders
when they correctly assess the market but have less balance of amount in his
trading account. Leverage provided by the trading platform in order gain the advantage of the current market situation
by investing more money for making more profit. So the investors are very concerned about this facility to grasp the market opportunity for enhancing
their margins.

The
forex market offers high returns but it also confers greater risk exposures.
There are numerous factors that contribute to the success in the forex trading
e.g. choosing the right trading platform or broker, adopting the risk
mitigation measures, investment diversification strategy and know-how of forex trading etc. Financial
institutions and large forex trading companies make transactions to manage the
risk of foreign exchange portfolio in their assets line by using the different
financial techniques also known as financial instruments like foreign currency
swap, by making forwards / future contracts or also by using the foreign
exchange options.  Forex
trading has gained the popularity by the reason of high returns on the
investment during a very short period of time that attracts to the investors.
Forex trading is most liquid market of the world which makes it so risky. In
forex trading, market situations are sometimes changed so rapidly that requires
prompt response and instant decision making in order to save the investment
from loss and making the profit from the current situation.

x

Hi!
I'm Gerard!

Would you like to get a custom essay? How about receiving a customized one?

Check it out