Forex (Foreign Exchange Market) is an inter-bank market for transactions of one currency to another currency. Forex took shape in 1970’s with the floating exchange rates of currencies. During the exchange of one currency to other currency, the exchange rate will depends on supply and demand. The overall scope of transactions is increasing day by day due to the extensive development of International trade and abolition of foreign currencies in some nations. In the percentile, London makes market of almost 30%, New York with 18% and Germany with 10%. With the advancement of information technology, so many people are doing trading either from office or home. The Forex market value is increased with a daily turnover of $1.5 trillion according to the 2010 economic times. Forex established itself in the top place with this turnover and sustainability. The profit and loss ratio is also reliable and can be easily calculated.
Percentile members of Forex
In comparison with stock market, Forex is divided into different levels of access. The top position will goes to interbank market, which is made up of largest security dealers and International banks. Within these markets, the ask price and bid price are fixed and razor sharp and cannot be displayed to others outside the inner circle. The difference will arise, if any large spreads are there i.e. if any trader wants larger transactions with larger amounts, then ask and bid price will differentiate. The level of access is directly proportional to the size and spread of the market. The interbank market covers 39% of the total Forex transactions. The other small and big markets will comprise other 60% of Forex.
Participants of Forex
In this Forex market, the person who wants to do the business is trader and the persons or companies dealing with these traders are called investor. The investors are divided into so many groups based on their size and transactions. The first place will go to large financial banks and institutions, and after that commercial company, which plays main role after those large banks, these commercial companies are willing to buy or sale exchanges in smaller amounts. Their trade rate doesn’t provide any impact on Forex with their minimal amount of profits and losses. The other participants include Investment management firms, non-foreign banks, money transfer/remittance companies and retail foreign exchange traders.
How Forex exchange rates will determine?
There are so many factors influence the changes in exchange rates according to the national issues. The following are some of those
Factors influence economy:
- Based on particular countries policy like spending and budget will clearly reflect the exchange rate accordingly.
- Nation Government budget deficits and surpluses. The market will swing according to the budgets deficits and surpluses.
- Based on the trade level, that is the demand of supply and goods. Trade deficit will definitely provide negative impact on economy of country’s currencies.
- Political conditions play an important role in Forex. For example some countries like Pakistan, Iran and Palestine’s coalition government policies will affect their national economy and vice versa their currency exchange rates.
So, Forex plays major role in marketing or selling any products to the outer country. Forex acts as bridge between one country currency and another country currency for easy and reliable exchange. The promising participants or investors will definitely a help full for people who are interested in doing trading business.