The foreign exchange market (FX or Forex) is one of the largest financial markets in the world and also one of the most liquid. According to the Triennial Central Bank assessment has great authority, drafted by the Bank for International Settlements, Basel, average daily gross earnings for April 2007 exceeded US $ 3.2 trillion, and everything points in the direction that the market continues to expand. The spot market accounts for about a third of the total FX market activity.
The foreign exchange (FX) is easy to understand from the moment one is given how much that a currency is effectively a good whose value can change against other currencies or other assets such as gold and crude .
What is Forex Trading?
In a transaction currency, it sold one currency for another. The exchange rate represents the relative value between the two currencies. Normally, currencies are identified by a code "Swift" three digits. For instance, EUR = the euro, USD = the US dollar, CHF = the Swiss franc, etc. Here you can find the full list of codes. An exchange rate EUR / USD 1.5000 means that 1 € worth $ US 1.5
Sometimes, EUR / USD currency pair is called. The exchange rate can be reversed. Thus the EUR / USD rate equals 1,500 kinds USD / EUR 0.6666. In other words, 1 $ US worth € 0.6666. In the market reality, most currencies are quoted against the dollar, although there are important exceptions as mentioned EUR / USD, GBP / USD (British Pound) and AUD / USD (Australian dollar). Not as confusing as it may seem.
Exchange Systems
There are basically two types of exchange rate systems:
1. The system of flexible exchange rates
2. The system of fixed exchange rates.
1. In a system of flexible exchange rates, currency "float" freely and its value is determined by market forces.
2. In a system of fixed exchange rates, the currency may not fluctuate freely, as their value is fixed in relation to a particular currency such as USD, with a specific type, or in relation to a basket of currencies. In a fixed system, the central bank uses its foreign exchange reserves to prevent any movement of the exchange rate fixed
.
What influences the market price changes
There are many factors that influence the value of a currency flexible type in the foreign exchange market, since the flows of international trade, economic or political situation given the level of interest rates until supply and demand short term. Unlike many other assets, FX is a pure market and rates move freely in both directions.
counter market
The foreign exchange (FX) is predominantly a counter market. Most transactions do not take place in a single regulated market, and this is one of the reasons why, despite its huge size, the forex market (FX) still find it confusing to many investors. However, technological advances have improved the transparency of this market and has opened to a larger number of operators. The FX market is open virtually 24 hours a day, 7 days a week and transactions are increasingly electronically.
Major players in the Forex market
Banks are major players in the FX market. The interbank trading represents the largest volume of Forex volumes. In this market, major banks trade directly with each other using inter-bank brokers or electronic trading systems such as Reuters. The bigger the bank, the greater their credit relationships with other banks which, for the customer, it means greater potential for better prices.
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