One of the questions we ask all the time: “What is Forex Trading?” When did it begin? How big is it? Who are the key players? What makes the evolution of exchange rates ?
Here are answers to all your questions!
What is Forex ?
Forex is the international market for the free exchange of currencies. Traders purchase orders from one currency to another currency. For example, a dealer will buy euros with dollars and the foreign exchange market use to do this.
The forex market is the largest market in the financial world. More than $ 4000000000000 dollar currency are exchanged every day. The amount of money is exchanged in one week is greater than the entire GDP of the United States!
The main currency used for forex trading is the U.S. dollar.
When to start Forex ?
As the world continues to rip into the Second World War there was an urgent need for financial stability. International negotiators from 29 countries met in Bretton Woods, and agreed to a new economic system, which would among other things, the fixed exchange rate.
The International Monetary Fund (IMF) was established under the Bretton Woods Agreement in 1949 and began operations. All exchange rate should be about 1% by the IMF, the effect of freezing those rates were approved.
Begun to break in the late 1960s the system of fixed exchange rate, by a series of international economic and political factors. Finally, in 1971, President Nixon was directly converted to the dollar to gold, as part of a series of measures to stem the collapse of the U.S. economy. This was known as the Nixon shock and lead to market foreign exchange rate variable was created in early 1973. Until 1976, all had the exchange rates of major currencies fluctuate freely.
With variable interest rates, currencies can be freely traded and the price change based on market forces. The modern foreign exchange market was born.
Who shops on the Forex market ?
There are many different players in the foreign exchange market. Some exchanges to make money, other commercial, other hedge their risks and simply need foreign exchange to pay for goods and services. The participants are:
* Central Government
* Commercial banks
Investment banks *
* Brokers and dealers
* The pension fund
When the Forex market is open ?
Unlike stock markets, which have limited opening hours, the Forex market is open 24 hours a day, five days a week. Banks need to buy and sell currencies around the clock, and the foreign exchange market should be open for them to do so.
What factors influence exchange rates ?
As with any market, the foreign exchange market through supply and demand:
* If buyers exceed sellers, prices rise
* If sellers outnumber buyers, prices fall
The following factors may influence the exchange rate:
* The national economic performance
* The policy of the central bank
Interest rates *
* Trade Balance – Imports and Exports
* Political factors – such as elections and political changes
* The market sentiment – the expectations and rumors
* If no unexpected events – terrorism and natural disasters
Despite all these factors is the foreign exchange market more stable than the global stock markets, exchange rates change slowly and in small quantities.
What are the advantages of the Forex market ?
The foreign exchange market has many advantages. These are:
* It is already the largest market in the world and is still growing rapidly
* It makes extensive use of information technology – and is therefore accessible to all
* Merchants can benefit from economies strong and weak
Trader * can be very short – prohibited in some other markets
* The market is not regulated
* Brokerage commissions are very low or nonexistent
* The market is open 24 hours a day during the week