Forex Trading

Learn The Ropes Of Forex Trading

Forex trading is an economic term meaning foreign currency exchange and exists wherever a type of currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments and other financial market institutions.

Commercial Banks in the money market

Forex trading transactions in foreign currencies is purchased and exchanged with another countries currency. The price agreed upon or negotiated for the currency purchased is referred to as the foreign exchange rate. Major Commercial Banks in the money market have centers throughout the world, which are responsible for a majority of foreign currencies being bought and sold. The leading money market centers of the world are in New York, Zurich, Frankfurt, London and Tokyo.

Forex trading banks in these cities will also act as correspondents for other banks and commercial customers or as an agent between the banks. It is also known as inter-bank markets. Forex trading rates tend to be uniform all over the world. The overall intention would be to stabilize currency values between the countries. It must also be remembered that the foreign currency market is a 24-hour market. When banks in New York are first opened to business, the London banks would have already been trading in forex for 5 or 6 hours. In the same way, when banks in Tokyo are being closed, banks in Los Angles would have just started. Regardless of where the money center is located in the world, forex trading will be at its maximum when business hours overlap between these money centers.

Commercial entities execute forex trading for a variety of reasons. This can be better explained as, multi-national importers and exporters who require foreign currency in order to finance their business operations. Another instance would be, takeovers of foreign enterprises by multi-national companies, requiring the currency of a particular country, where the proposed business move is being made. Likewise, repaying of foreign debt or financing a foreign subsidiary or even reinvesting for higher returns, are all reasons that would precipitate a foreign currency transaction or forex trading by a commercial entity. Retail traders or individuals are a small fraction of this market and may only participate indirectly, through brokers or banks. They are also subject to forex scams sometimes in the process.

Markets functioning

There are many reasons for the popularity of trading, but among the most important are the leverage in currency transactions and its high liquidity 24 hours a day. It also has a very low dealing cost normally associated with trading. Many commercial organizations participate due to currency requisites created by their import and export activities. Investing in foreign exchange remains predominantly the domain of big professional players in the market funds, like the international and multi-national banks and brokers. Nevertheless, any investor with the necessary knowledge of markets functioning can benefit from the advantages of forex marketing.