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Money Talks And Trading: What Is FOREX?
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By Bjornson Bernales
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Money Talks And Trading: What Is FOREX?
Currency trading or foreign exchange market is regarded as the most liquid form of financial market in the world. Recently, trading of currencies has reached cash value of more than a trillion per day based on estimates. The highest mark so far that currency trading has attained is the 3-trillion dollars plus worth. This occurs in 2007 wherein the global foreign exchange market averages over 3 trillion US dollars per day. The US currency is the largest traded currency in the world followed by the euro and Japanese yen.
Foreign exchange, simply known as FOREX, is considered the world's largest financial market to date with over 190 currencies traded. It is by far larger than commodities and stock markets combined. The impressive level of liquidity of currency trading has been a force of the constant selling and buying of currencies throughout the day.
Except on Saturdays and Sundays, the trading of currencies occurs 24/7 making FOREX a unique financial market with the longest trading hours. This may have been the reason of the burgeoning level of currencies traded in volume in every transaction period.
Moreover, the trading mostly occurs electronically. Unlike stock market where there is a central exchange house, foreign exchange is an over-the-counter trading where direct negotiation occurs between brokers and dealers, buyers and sellers of currencies.
The uniqueness of foreign exchange can also be attributed to its geographical dispersion. Electronic trading is increasingly common. It is possible for currency players to transact online. Though there is no clearinghouse in foreign exchange, the largest geographic trading center by far is London. Likewise, financial institutions around the world actively trade currencies. Most of the largest banks in the world are active traders in which they collectively account over 70% of the trading volume.
Deutsche Bank, UBS AG, Citi, Goldman Sachs, HSBC, Bank of America, JPMorgan, Morgan Stanley, Barclays Capital and Royal Bank o
f Scotland are top currency traders in the world. Large banks are brisk traders of currencies. Currency trading also happens between multinational corporations, currency speculators, governments, central banks and other financial markets. Retail forex traders, also known as market-makers constitute a small percentage of the total volume of currencies traded. Individual traders, however, have been increasing in numbers currently.
Another unique attribute of FOREX is the low margins of gain compared with other financial markets. However, if the large volumes are involved, it is likely for a trader to gain high profits from the transaction.
Different transactions can occur in the foreign exchange market. The spot transaction comprises the largest portion of the market. It has the shortest time frame of delivery than other transactions wherein currencies are directly traded in cash as opposed to the future contracts that involve contract in the transaction. Likewise, no interest is involved in the transaction making it an on-the-spot exchange with 2-day delivery.
Traders can also make transactions of currencies wherein the delivery can take place on an agreed future date. It could be a few days or months or years. This form of FOREX transaction is called forward transaction. The involvement of future contracts in a forward transaction is called forex future contracts.
The most common type of foreign exchange market transaction is currency swap. This transaction has the characteristics of spot transaction and forward transaction. Two parties exchange currencies with an agreement of a payback transaction of original amounts at a specified future date.
Another transaction in the foreign exchange market include is the foreign exchange option, which is regarded as the most liquid and largest market for options.
Foreign exchange market, though a large financial market, is also vulnerable to forex scams. Regulation of transactions in the foreign exchange market has been implemented. However, because of the existence of retail traders, the control of fraud particularly outright fraud in trading has not been fully materialized.
Foreign exchange, simply known as FOREX, is considered the world's largest financial market to date with over 190 currencies traded. It is by far larger than commodities and stock markets combined. The impressive level of liquidity of currency trading has been a force of the constant selling and buying of currencies throughout the day.
Except on Saturdays and Sundays, the trading of currencies occurs 24/7 making FOREX a unique financial market with the longest trading hours. This may have been the reason of the burgeoning level of currencies traded in volume in every transaction period.
Moreover, the trading mostly occurs electronically. Unlike stock market where there is a central exchange house, foreign exchange is an over-the-counter trading where direct negotiation occurs between brokers and dealers, buyers and sellers of currencies.
The uniqueness of foreign exchange can also be attributed to its geographical dispersion. Electronic trading is increasingly common. It is possible for currency players to transact online. Though there is no clearinghouse in foreign exchange, the largest geographic trading center by far is London. Likewise, financial institutions around the world actively trade currencies. Most of the largest banks in the world are active traders in which they collectively account over 70% of the trading volume.
Deutsche Bank, UBS AG, Citi, Goldman Sachs, HSBC, Bank of America, JPMorgan, Morgan Stanley, Barclays Capital and Royal Bank o
Another unique attribute of FOREX is the low margins of gain compared with other financial markets. However, if the large volumes are involved, it is likely for a trader to gain high profits from the transaction.
Different transactions can occur in the foreign exchange market. The spot transaction comprises the largest portion of the market. It has the shortest time frame of delivery than other transactions wherein currencies are directly traded in cash as opposed to the future contracts that involve contract in the transaction. Likewise, no interest is involved in the transaction making it an on-the-spot exchange with 2-day delivery.
Traders can also make transactions of currencies wherein the delivery can take place on an agreed future date. It could be a few days or months or years. This form of FOREX transaction is called forward transaction. The involvement of future contracts in a forward transaction is called forex future contracts.
The most common type of foreign exchange market transaction is currency swap. This transaction has the characteristics of spot transaction and forward transaction. Two parties exchange currencies with an agreement of a payback transaction of original amounts at a specified future date.
Another transaction in the foreign exchange market include is the foreign exchange option, which is regarded as the most liquid and largest market for options.
Foreign exchange market, though a large financial market, is also vulnerable to forex scams. Regulation of transactions in the foreign exchange market has been implemented. However, because of the existence of retail traders, the control of fraud particularly outright fraud in trading has not been fully materialized.
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