Foreign currency trading is performed in a foreign exchange market where one type of currency is exchanged or traded for another type of currency. Currency trading is considered to be the largest financial market on the planet. Players participating in currency trading within a Forex market are the large banks like Citibank and Deutsche bank, nationalized and government banks, multinational firms, financial institutions and investment companies. The daily volume of the present global forex market is around US $3 trillion. Provided the large size and high liquidity of the markets globally, small players cannot easily do trading in a Forex market.
Trading within a market is performed in levels, where a player in a level doesn't have access to other levels. The top level is the inter-bank market comprised of large banks such as Deutsche bank, Citibank, Union bank of Switzerland and other banks throughout the globe. The top 10 players sweep off 70% of the total business done in the Forex trading. In the top level, the difference between the bid and ask price known as Spread is really minute and is not available to other circles outside. As the levels descend, the difference increases primarily because of the volumes traded. Level of access for a player is determined by the 'line', the money with which one is trading. Currency trading has nearly doubled today ever since 2001 primarily because of the recongnition of Forex trading being an investment and asset class and also an increase in the fund management assets of pension funds and hedge funds.
Commercial companies do currency trading mainly to pay their customers for their goods or services and trade in small amounts in comparison with large banks. Investment management companies do trading to take care of the pension or endowment or investment portfolio of their customers and are usually in large amounts, because they need to invest in foreign equities for which they need to exchange currency to purchase those equities.
Allow us to see the common characteristics of a Forex currency trading. Because of the over-the-counter nature, the currency markets does not trade in a single dollar or even a euro rate, but instead a different number of rate applicable just to that specific market. There's no central house or hub or exchange or clearing house as traders deal directly with each because of this OTC nature. Usually these rates are close to one another; otherwise special traders known as arbitrageurs take advantage of the difference in the rates and make large profits out of it. Main trading centers throughout the world are in London, New york, Tokyo and Singapore. As the time zones differ, trading is done almost 24 hours a day. Fluctuations in the rate happen due to changes in the inflation, interest rates of banks, GDP growth, trade deficits and surpluses, cross-border M&A deals, economic situations, financial health and various other macro economic conditions.
Currencies are traded for each other and each pair of currencies is a separate and unique product and usually denoted by XXX/YYY. During creation, the XXX, known as base currency, is the strongest and YYY the weakest. Nowadays the US dollar is in nearly 88% of the transactions then Euro (37%) and yen. Essentially the most traded pairs are Euro/US dollar, US dollar/Yen and GB pound/US dollar.
Trading is done through different kinds of instruments such as derivatives, spot transactions, forward transactions, options and futures, swaps and exchange-traded funds. Currency speculation is done by speculators who do an important job of transferring the risk from those who cannot bear to those who can bear it. Speculators constantly face controversies due to the risk they undertake. Currency trading is influenced by certain factors like economic and financial situations, political scenarios, along with other psychological issues related to the markets.
Trading within a market is performed in levels, where a player in a level doesn't have access to other levels. The top level is the inter-bank market comprised of large banks such as Deutsche bank, Citibank, Union bank of Switzerland and other banks throughout the globe. The top 10 players sweep off 70% of the total business done in the Forex trading. In the top level, the difference between the bid and ask price known as Spread is really minute and is not available to other circles outside. As the levels descend, the difference increases primarily because of the volumes traded. Level of access for a player is determined by the 'line', the money with which one is trading. Currency trading has nearly doubled today ever since 2001 primarily because of the recongnition of Forex trading being an investment and asset class and also an increase in the fund management assets of pension funds and hedge funds.
Commercial companies do currency trading mainly to pay their customers for their goods or services and trade in small amounts in comparison with large banks. Investment management companies do trading to take care of the pension or endowment or investment portfolio of their customers and are usually in large amounts, because they need to invest in foreign equities for which they need to exchange currency to purchase those equities.
Allow us to see the common characteristics of a Forex currency trading. Because of the over-the-counter nature, the currency markets does not trade in a single dollar or even a euro rate, but instead a different number of rate applicable just to that specific market. There's no central house or hub or exchange or clearing house as traders deal directly with each because of this OTC nature. Usually these rates are close to one another; otherwise special traders known as arbitrageurs take advantage of the difference in the rates and make large profits out of it. Main trading centers throughout the world are in London, New york, Tokyo and Singapore. As the time zones differ, trading is done almost 24 hours a day. Fluctuations in the rate happen due to changes in the inflation, interest rates of banks, GDP growth, trade deficits and surpluses, cross-border M&A deals, economic situations, financial health and various other macro economic conditions.
Currencies are traded for each other and each pair of currencies is a separate and unique product and usually denoted by XXX/YYY. During creation, the XXX, known as base currency, is the strongest and YYY the weakest. Nowadays the US dollar is in nearly 88% of the transactions then Euro (37%) and yen. Essentially the most traded pairs are Euro/US dollar, US dollar/Yen and GB pound/US dollar.
Trading is done through different kinds of instruments such as derivatives, spot transactions, forward transactions, options and futures, swaps and exchange-traded funds. Currency speculation is done by speculators who do an important job of transferring the risk from those who cannot bear to those who can bear it. Speculators constantly face controversies due to the risk they undertake. Currency trading is influenced by certain factors like economic and financial situations, political scenarios, along with other psychological issues related to the markets.
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