The forex world exchange rate is a global disperse market for trading currencies. This market regulates the foreign rate which includes all aspects of buying, selling and bargaining currencies at determined prices. In terms of trading quantity, it is the largest market in the world. The main players in this market are the larger international banks, financial centers around the world function as mainstay of trading between a wide range of different types of buyers and sellers around the clock, with the omission of weekends. Since currencies are usually traded in pairs, the foreign market does not set a currency’s outright value but instead it sets the market price of one currency if paid for with another. For example 1 USD is worth X CHF or JPY.
The forex world exchange market works through financial institutions and function on several levels. It assists international trade and investments by activating currency conversion. It also back direct conjecture and evaluation which is analogous to the worth of currencies and carry trade speculation based on the differential interest rate between two currencies. In a typical transaction, a party purchases some quantity of one currency paying with some quantity of another currency. The foreign world exchange market is different and unique due to the following characteristics;
1. Its large trading volume represents the largest asset class in the world, leading to high liquidity.
2. There is continuous operation, that is, 24 hours a day.
3. It involves the use of leverage to enhance profit and loss margins and with respect to account size.
MARKET SIZE AND LIQUIDITY
The foreign world exchange market is the largest financial market in the world. Traders include government, commercial banks. Central banks, institutional investors, financial institutions, currency speculators and other commercial corporations. The average daily turnover in the global foreign exchange and related market is continuously growing. Most developed countries allows the trading of derivative products on their exchanges as they already have fully convertible capital accounts. Few government of emerging and developing markets do not allow foreign exchange derivative products on their exchanges. This is due to capital controls. Foreign exchange trading increased by 20 percent between April 2007 and April 2010 and has doubled over the years. The hike in turnover is due to some factors factors such as the emerging importance of foreign exchange as an asset class, the increased trading activity of high frequency traders, and the emergence of retail investors as a crucial market segment. The increase of electronic execution and the different selection of execution venues has lowered transaction costs, increased market liquidity and attracted greater participation from many customer types. In particular, electronic trading via online portals has made it easier for retail traders to trade in the foreign global market. Foreign global exchange is traded in an over the counter market where brokers deals directly and negotiate with one another.
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