The foreign exchange market is the place where different currencies are traded for one another. As such, it is held to be the biggest financial market in the world, and one which is closest to the ideal of ‘perfect competition’ held by economists the world over. The traders in this market include currency speculators, banks, central banks, governments, multinational corporations, and other financial organizations.
Features of Foreign Exchange Market – Sydney Forex
- The foreign exchange market or the Forex market is characterized by:
- Huge trading volumes
- 24 hour trading
- Geographical Diversity
- Large variety and number of traders
The trading volumes of the Forex market exceed billions of dollars and the market is open 24 hours а day because currency is traded all throughout the globe. This geographical diversity is the reason that а large variety of traders exist in the foreign exchange market today. Also adding to this diversity is the capability of different platforms such as Internet trading, to create а diverse trader base in the market.
Of course, the fact that trade in this market consists of currency or foreign exchange is bound to create а very high amount of liquidity in this particular market.
The main feature of this market is that there is no central marketplace for the trade of foreign exchange. As such, the trade is carried out OTC or Over the Counter
depending upon the kind of foreign exchange or currency instrument being traded, and the kind of trade being conducted, the prices vary. For example, the price for buying currency notes would be different from the price fur buying checks. Similarly а buy transaction exchange rate will differ from а sell transaction exchange rate.
The Top 5 currencies which are traded in the foreign exchange market are:
United States Dollar (USD)
Eurozone Euro (EUR)
Japanese Yen (JPY)
British Pound Sterling (GBP)
Swiss Franc (CHF)
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Currency rates are always expressed in terms of another, more popular or stable currency. For example, the exchange rate of the Indian Rupee is always expressed in comparison with the United States Dollar.
Factors Affecting Forex Currency Market Trade
Due to its particular features, foreign exchange rates and trade in the foreign exchange market are primarily the result of the demand and supply functions of currency.
Other than this point of view, the Forex market is also affected by factors which can be broadly classified into:
• Political Factors
• Economic Factors
• Market Psychology
Political conditions of а country can affect that country’s currency rates. Growth and economic prosperity can positively affect the currency rates, while political upheaval like civil war can negatively affect the currency rates of that country.
Economic factors include things such as the budget deficit or surplus conditions of that country, the balance of trade situation, levels of inflation and the general trend of economic growth in that country.
Market psychology includes the susceptibility of the Forex market to rumors, perceptions of the market regarding the safety of а particular currency, and the definitive long term trends of а currency in the market.
All these factors contribute towards the currency rate of а particular country to rise or fall.