Everything You Need To Know About Forex Basics
Foreign exchange is changing one currency to another for a variety of reasons, usually for trade, trading or tourism. According to the 2016 triennial report of the Bank for International Settlements (a world bank for national central banks), the average daily volume of transactions on the foreign exchange market was more than $ 5.1 billion.
The forex is the location where currencies are exchanged. Currencies are important to most people in the world, whether they realize it or not, because they have to be exchanged for commercial and commercial purposes abroad. If you live in the United States and want to buy cheese from France, you or the company from which you buy cheese must pay French for cheese in euros (EUR). This means that the US importer should exchange the equivalent in US dollars (USD) in euros. The same goes for traveling. A French tourist in Egypt can not pay in euros to see the pyramids because it is not locally accepted currency. As such, the tourist must exchange euros for the local currency, in this case the Egyptian pound, at the prevailing exchange rate.
A unique aspect of this international market is that there is no central market for foreign exchange. Instead, currency transactions are done electronically, meaning that all transactions take place via computer networks between operators worldwide rather than on a single centralized exchange. The FX global is available 24 hours a day. Currencies are traded worldwide in major financial centers including London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney. each time zone. This means that when the trading day in the United States ends, the foreign exchange market is reborn in Tokyo and Hong Kong. As such, the foreign exchange market can be extremely active at any time of the day, with prices constantly changing.
Forex History
After the agreement reached at Bretton Woods in 1971, several major currencies were allowed to float freely against each other. The values of different currencies vary, which has created a need for foreign exchange and trading services.
Commercial banks and investment banks do most foreign exchange trading on behalf of their clients, but there are also speculative opportunities to exchange one currency for another for professional investors and individuals.
Spot Market and Futures and Futures Markets
Institutions, companies and individuals trade forex in three ways: the spot market, the futures market and the futures market. The forex market in the spot market has always been the largest market because it is the "underlying" real asset on which the futures and futures markets are based. In the past, the futures market was the most popular place for traders because it was accessible to individual investors longer. However, with the advent of e-commerce and many foreign exchange brokers, the spot market has experienced a sharp increase in activity and now exceeds the futures market as the preferred trading market for individual investors. and speculators. When people refer to the foreign exchange market, they usually refer to the cash market. Futures and futures markets tend to be more popular with companies that have to hedge their currency risk until a later date.
Specifically, the spot market is where the currencies are bought and sold based on the current price. This price, determined by supply and demand, reflects many factors, including current interest rates, economic performance, confidence in current political situations (local and international), as well as the perception of future performance of one currency over another. . When an agreement is finalized, it is a "cash agreement".
After closing a position, the settlement is in cash. Although the spot market is commonly referred to as one dealing with transactions in the present (rather than in the future), these operations actually take two days for settlement.
Unlike the spot market, futures and futures markets are not traded with real currencies. Instead, they are treated in contracts that represent claims of a certain currency type, a specific price per unit and a future date for settlement.
In the forwards market, contracts are bought and sold without a prescription between two parties, who determine the terms of the agreement between them.
In the futures market, futures contracts are bought and sold based on a standard size and a settlement date in the public product markets, such as the Chicago Mercantile Exchange. The exchange acts as a counterpart to the merchant, providing compensation and liquidation.
Both types of contracts are binding and are generally settled in cash for the exchange in question at expiration, although contracts can also be bought and sold before they expire. The forward and futures markets can offer protection against risks when trading currencies. In general, large international corporations use these markets to protect against future fluctuations in exchange rates, but speculators also participate in these markets.
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