An Overview of the Foreign Currency Market

An Overview of the Foreign Currency Market

The foreign currency trading market is three times of the size of the future markets and the total stocks taken together. Though the market is the biggest in terms of the sheer volume of trade been conducted, it does not have a physical centre as such and therefore boasts of a virtual presence. Most of the transactions are thus carried out through online currency exchange. The Foreign Currency Trading practically operates through electronic means and therefore most of the trading takes place online.

The currencies that play a dominant role in FOREX include:

Canadian dollar

US dollar

Australian dollar

Japanese Yen

Euro dollar

British pound sterling

Swiss franc

Currency prices are regulated by political and economic conditions and other important factors that are taken into account include international trade, political stability, inflation and interest rates.

There are individuals who decide to actively trade in the foreign currency market that is they sell and buy foreign currency. It is believed that there is a lot of money doing the rounds. There have been accounts indicating that people have become millionaires after trading in the Forex market but at the same time there have also been reports of people who have lost everything they had after trading in the foreign currency market. Before you start trading in the foreign currency market, it is necessary to keep three things in mind.

The political situation in a country plays a crucial role in determining the exchange rates and the value of a currency. If you wish to know the value of a currency, its current or depreciating value, then you need to examine the political situation of the country. In countries where the political situation is unstable, it is likely that the currency rates will be affected by the situation.

You also need to check the past trends. There are countries where the currency rates keep on fluctuating. You can therefore examine the past trends in order to gauge whether there would be any kind of rapid fluctuations in the market. Examining the trends will give you an idea of the economic and political stability of the country that plays a crucial role in determining the exchange rates. For example, if you wish to convert a certain dollar value into British currency, then you can be assured of the fact that the currency rates do not fluctuate much in comparison to other countries where the economic and political situation is volatile.

Foreign currency rates are also indicative of the trade patterns between two nations. There are a number of organisations and institutions which are involved in forex market trading. There is limited individual participation in such trading as a result of the low profit margins that is observed in the market and it is only possible to earn a significant profit margin for a large organisation. There are several organisations that conduct trade in foreign currency in UK. Banks regularly take part in forex trading. Commercial companies also have to deal in foreign currencies for purchasing certain goods and services but these accounts for only a small section of the market. Then there are the investment management firms that make use of the forex for foreign asset trading.

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