The Forex refers to foreign exchange that came into existence within the 1970s. The sole purpose of this was to evaluate one currency to other. Foreign exchange market refers to the decentralized market which is used for trading the currencies specifically. There are no financial controls in the markets and it is free to trade one.
Forex market- Understanding its evolution-
Because of the Forex exchange markets, the world of today in reality is a global village. Within this market, there is a possibility of doing intercontinental business transactions from any corner of the world.
What exactly is the Forex all about?
The Forex market is made based on pure currency trading. The functioning of this market is based on currency price determination.
This market resembles another trading market i.e. Equities or commodities. The only difference here is the medium of the transaction- i.e. the currency. Large business enterprises i.e. Individuals and financial institutions buy and sell the currencies and trade with them to increase the profits in terms of the fluctuation of the exchange market. The central banks of varied countries might use Forex markets as an option for offloading excess reserves of a foreign currency (if necessary and vice-versa).
Interesting Statistics related to Forex market-
Some statistics related to the market include-
- Huge transactions nearly US$ 4 trillion regularly $45 billion in currency exchange is executed regularly
- $1.75 trillion swapped in foreign exchange
- The growth rate of nearly 20 per cent every year
Exchange rate and Forex- The exchange rate is the major factor that determines trading profitability. This rate continuously fluctuates and is determined over demand and supply adjustments.
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Advantages of trading in Forex Markets:
Forex markets are volatile but comparatively more stable as compared to the stock market. It is not obligatory to purchase to facilitate a trading action in the Forex market. Easier to monitor the Forex market in comparison to the stock markets, this is because of the limited number of components to track or monitor.
Markets are more independent from factors that affect the financial markets.
Forex market volumes are smaller than transactions that occur on stock markets. However, the risk factor in Forex trading is lesser. Changes in interest rates also have little or no effect on Forex exchange rates. However, in terms of volume of transaction, the Forex market offers a lot of potentials to earn profitability.