What Is Forex?
If you are a keen follower of matters dealing in finance, the chances are high that you have come across the term forex a couple of times. This term is short for foreign exchange encompasses the change of currency from one unit to a preferred unit. The forex market is where this exchange occurs and is a decentralized global market for currencies and other financial trading instruments. The forex market is a very significant market in finance and indirectly helps in the determination of the price of goods more so if they are for export. This market also gives you a hint on the performance of various currency units, most times to another currency unit.
Forex, brokers, online trading: what it means
The forex market has one of the most substantial trade volumes in the world, and it is in many cases is considered to be the most liquid market in the financial world owing to its many bids and orders. It has no centralized market place instead its business is over the counter. The major players in forex most of the time are large international banks with forex centers that act as a level playing ground for buyers and sellers of various currency units. While the large banks serve as moderators in this market, large quantity trading in the forex market occurs behind the scenes where these financial institutions have their activities carried out by dealers or brokers. Such brokers will deal in the currency exchange where they will get a specific commission for their part. Find our more about one of the best known and our special Avatrade Partner code.
This trading occurs for 24 hours a day for five days a week except for weekends. The primary foreign exchange trading centers are located in the largest financial centers in the world. This includes cities such as London, New York, Paris, Hong Kong, Sydney, and Singapore.
History of Foreign Exchange
The forex market has been present with us for long ever since the medieval time. It actually can trace its origins to way back when people started using a basic currency unit while trading. During those days, each territory had its currency unit, but for trading between two parties from different regions to occur, they needed a common currency. For this reason, some traders specialized in exchanging one currency to another at a commission.
In the 19th century, the present state of the forex market started taking shape and operation was on the basis of precious metals, gold, and silver. Due to the fluctuation of prices of the metals, gold was adopted to create a two-way path for exchange. This was around the mid-1800s. This meant that all major world currencies were pegged to the price of an ounce of gold. This system referred to us the gold standard faced many challenges especially during the war years that characterized the early to mid-1900s.
Eventually, plans were made to phase out the gold system and the Bretton Woods system was adopted. The Bretton Woods system had gold replaced by the United States dollar and all currencies for exchange were viewed in value in relation to the United States dollar. This system faced a lot of hassles. It was dropped after almost two decades and enabled free-floating exchange rates to feature. This is the basic model of the present forex system.
As at present, the forex sector has adopted technology use efficiently, and now traders can trade over the internet. This also provides an excellent platform for one to receive news on forex trading such as currency performance and other emerging trends.
The basic of the forex concepts lie on the need to have the desired currency to make a specific deal or for speculative purposes. Each country has a different currency, and for you to be able to do business or any other deal within that jurisdiction, you will need its currency. Here you will go to a forex center and request for a change in the money where you may swap the currencies or rather buy it. Each currency has a different rate to other currencies. The rates may be slightly tweaked for the dealer to earn some commission. The players in this market include the banks, the traders and brokers and also speculators.
Characteristics of the Forex Market
The foreign exchange market is a unique market structure due to its features which are as follows:
This market is said to be very transparent to all the parties involved in the trade. This is due to the presence of data and information that will guide them in their investment prospects. Most forex centers will display the current standings of prices on their boards so that the traders can know which step to take.
24/7 Five Days A Week Presence
Another unique feature that sets the forex trading sector apart from the rest is its operation times. It runs round the clock for five straight days of the week save for the weekends. Some say it is due to the different time zones of the world considering it is a global market.
International Network of Dealers
Dealers are located in every forex center located globally. All of them deal with the same product which is the currencies, and their prices are almost equal with a slight variance. The dealers may be the financial institutions such as banks or individual traders who will exchange your currency to a preferred one at a commission.
It Is a Very Liquid Market
The market is very liquid, and traders can easily trade without affecting the prices of the currencies being traded in.
Low Trading Costs
Entry to the forex trading does not require a large capital base for one to take part in. These low trading costs have made it possible for even small traders to venture into the forex market.
The forex market is among the most influential markets in the financial world and carries with it a determinant factor especially where international trade is involved. This market will give traders the opportunity to trade with the currency of their choice or have different money for speculative financial purposes. If you want to start trading, have a look at our best online brokers comparison article.
Emerging Trends on Forex
One of the most notable emerging trends in forex is the incorporation of technology and taking forex trading online. With the use of an online platform, interested parties can see the currency rates. They also can check on their previous performance on the database of the platform. Also by going online, traders have access to real-time forex news.