Forex Trading Platform
The foreign exchange market (forex, FX, or currency market) is a global market for the trading ofdifferent currencies. This constitutes of buying, selling and exchanging currencies at current or determined prices. It is by far the largest market in the world in terms of trading. The larger international banks are the biggest participants. Financial centersaround the world function as anchors of trading between multiple types of buyers and sellers around the clock. The foreign exchange market does set the current market price of the value of one currency as the predetermined prices.
The foreign exchange market does itsworks in financial institutions, and it operates at several levels. The banks turn to a smaller number of financial firms called “dealers,” who are actively involved in large quantities of foreign exchange trading. Most foreign exchange dealers are banks, so they are sometimes called the “interbank market”, where a few insurance companies and other kinds of financial firms are involved. The Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars. Forex has little (if any) supervisory entity regulating its actions because of its sovereignty issues.
The foreign exchange market provides assistance to international trade and investments with the help of currency conversion. Like it permits a business in the United States to import goods from European Union member states, and pays Euros, even though its income is in United States dollars. It also supports direct speculation and evaluation of the value of currencies, and the carry trade, speculation based on the interest rate on difference of two currencies.
When a party purchases some quantity of one currency by paying with some quantity of another currency it is the advantage. The modern foreign exchange market formed during the 1970s after three decades of government restrictions on foreign exchange transactions.
The foreign exchange market is unique because of the following characteristics:
- its huge trading volume with high liquidity;
- its geographical dispersion;
- its continuous operation:
- the various factors that affect exchange rates;
- the low margins of relative profit compared to other markets
- the use of leverageto enhance profit and loss margins and with respect to account size.
During ancient timespeople helping others to change money and also taking a commission or charging a fee. During the 4th century, the Byzantine government kept a monopoly on the exchange of currency and exchange was also a vital element of trade during the ancient world so that people could buy and sell items like food, pottery and raw materials. The year 1880 is strictly considered as one source of beginning of modern foreign exchange. During the year 1899 to 1913, holdings of countries’ foreign exchange increased at an annual rate of 10.8%, while holdings of gold increased at an annual rate of 6.3% in the year between 1903 and 1913.During the year 1913, nearly half of the world’s foreign exchange was conducted using the Pound sterling.
The foreign exchange market is the most liquid financial market in the world whichincludes Traders like large banks, central banks, institutional, currency speculators, corporations, governments, other financial institutions, and retail investors. Many developed countrieswhich already have fully convertible capital accounts permits the trading of derivative products on their exchanges.. Some governments of emerging markets do not allow foreign exchange products on their exchanges because they have capital controls. Countries such as South Korea, South Africa, and India have established currency futures exchanges, despite having some capital controls. Unlike other stock market, the foreign exchange market is divided into levels of access. The interbank market is the largest commercial banks and securities dealers.
Most of the part of the foreign exchange market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies’ trade fairly with small amounts compared to those of banks or speculators, and their trades often have little short-term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency’s exchange rate.
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market.Central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
Foreign exchange fixing is the daily monetary exchange rate fixed by the national bank of the respective countries. Central banks use the fixing time and exchange rate to evaluate behavior of their currency. Fixed exchange rates reflect the real value of equilibrium in the market. Banks, dealers and traders use fixing rates as a trend indicator.
Investment management firms which typically manages large accounts on behalf of customers such as pension funds and endowments and use the foreign exchange market to facilitate transactions for foreign securities.Someinvestment management firms are more speculative for currency overlay operations, which manage clients’ currency exposures with the aim of generating profits as well as limiting risk. While the number of this type of specialist firms is quite small, many have a large value of assets under management and, thus, can generate large trades.
Individual retail speculative traders constitute a growing segment of this kind of market with the advent of retail foreign exchange trading, both in terms of size and importance. Currently, they participate indirectly through brokers or banks. Retail brokers are controlled and regulated in the USA by the Commodity Futures Trading Commission and National Futures Association. Many a number of foreign exchange brokers operate from the UK under Financial Services Authority regulations where foreign exchange trading using margin is part of the wider over-the-counter derivatives trading industry that includes Contract for differences and financial.
There are two main types of retail Forex brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. Brokers serve as an agent to the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge a commission or mark-up in addition to the price obtained in the market. Dealers or market makers, by contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are willing to deal at.
Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies which are also called foreign exchange brokers but are distinct in that they do not offer speculative trading but rather currency exchange with payments It is estimated that in the UK, 14% of currency transfers/payments are made via Foreign Exchange Companies.These companies’ usually offer better exchange rates or cheaper payments than the customer’s bank.These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.
Economic factors include: (a) economic policy, disseminated by government agencies and central banks, (b) economic conditions, generally revealed through economic reports, and other economic indicators.
- Economic policy comprises of governmental fiscal policy(budget/spending practices) and monetary policy (the means by which a government’s central bank influences the supply and “cost” of money, which is reflected by the level of interest rates).
- Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country’s currency.
- Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country’s currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation’s economy. For example, trade deficitsmay have a negative impact on a nation’s currency.
- Inflation levels and trends: Typically a currency would lose value if there is a high level of inflation in the country or if especially inflation levels are tend to be rising. This is because inflation decreases purchasing power, so it demands, for a particular currency. A currency sometimes strengthens when the rise of inflation rises because of expectations that the central bank would raise short-term interest rates to combat rising inflation.
- Economic growth and health: Reports of GDP, employment levels, retail sales, capacity utilizationand others, detail the levels of a country’s economic growth and health. Absolutely, the more healthy and robust a country’s economy, the better its currency will perform, and the more demand for it there will be.
- Productivity of an economy: Increasing productivity of an economy should influence the value of its currency in a positive manner. Its effects are more prominent in case of the traded sector.