Forex Tips: The foreign exchange market is a universal decentralized market for the trading of currencies. This includes all aspects of buying, exchanging and selling currencies at current or determined prices. In terms of volume of trading, it is by far the biggest market in the world. The main participants in this market are the larger international banks. Financial centers around the world function as mainstay of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. The overseas exchange market does not determine the relative values of different currencies, but sets the recent market price of the value of one currency as demanded against another.
Characteristics of foreign exchange market due which it’s unique:
Its huge trading volume representing the biggest asset class in the world leading to high liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends, That is, trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
The variety of factors that influence exchange rates;
The low margins of relative profit compared with other markets of fixed income; and
The use of leverage to enhance loss and profit margins and with respect to account size.
As such, it has been referred to as the market nearest to the ideal of perfect competition, notwithstanding currency interference by central banks.
According to the Bank for International Settlements, the preliminary global results from the 2013 Triennial Central Bank Survey of Forex and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged 5.3 trillion Dollar/day in April 2013. This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007. Forex swaps were the most actively traded instruments in April 2013, at 2.2 trillion Dollar/day, followed by spot trading at 2.0 trillion Dollar. According to the Bank for International Settlements, as of April 2010, average daily turnover in global Forex Tips markets is estimated at 3.98 trillion Dollar, a growth of approximately 20 per cent over the $3.21 trillion daily volume as of April 2007. Some firms specializing on Forex market had put the average daily turnover in excess of United State Dollar 4 trillion. The $3.98 trillion break-down is as follows:
$475 billion in outright forwards
$1.490 trillion in spot transactions
$43 billion currency swaps
$1.765 trillion in foreign exchange swaps
$207 billion in options and other products
Risk aversion is a kind of trading action exhibited by the Forex market when a potentially adverse event happens which may influence market conditions. This action is caused when risk averse traders liquidate their positions in risky assets and shift the funds to less risky assets because of uncertainty.
In the context of the Forex market, traders liquidate their positions in many more currencies to take up positions in safe-haven currencies, such as the USD. Sometimes, the choice of a safe haven currency is more of a choice based on prevailing sentiments rather than 1 of economic statistics. An example would be the Financial Crisis of 2008. The value of equities across the world fell while the USD strengthened. This occur despite the strong focus of the crisis in the USA.
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Foreign exchange market
The foreign exchange market is a universal decentralized market for the trading of currencies. This includes all aspects of buying, exchanging and selling currencies at current or determined prices. In terms of volume of trading, it is by far the biggest market in the world. The main participants in this market are the larger international banks. Financial centers around the world function as mainstay of trading between a wide range of multiple types of buyers and sellers around the clock, with