What is Forex Market ?
Foreign, Forex, FX, currency exchange is the market where Traders can buy, sell and speculate on the currencies. Here in Forex market it is being trade on the currency not on stocks of company, the main participant of the market are larger International banks, Financial companies. Forex is the world biggest market and we can understand it in a manner that it would take 29 days of trading on the NY stock exchange to equal one day of Forex Market Trading.
Since currencies are always traded in pairs, the foreign exchange market does not set a currency’s absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: US$1 is worth X CAD, or CHF, or JPY, etc.
The foreign exchange market is unique because of the following characteristics:
- Its huge trading volume, representing the largest asset class in the world leading to high liquidity
- Its geographical dispersion
- Its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York)
- The variety of factors that affect exchange rates
- The low margins of relative profit compared with other markets of fixed income.
- The use of leverage to enhance profit and loss margins and with respect to account size.
The $5.09 trillion break-down is as follows:
- $1.654 trillion in spot transactions
- $700 billion in outright forwards
- $2.383 trillion in foreign exchange swaps
- $96 billion currency swaps
- $254 billion in options and other product.