A Brief Guide To Understanding Foreign Exchange Markets
The exchange of different world currencies is what takes place in the Foreign Exchange markets. Sometimes referred to as the FX Markets or Forex Markets, they account for the highest volume of trading when compared to any other market. Nearly $4 trillion dollars changes hands daily on the Forex Markets.
Anyone who has ever changed money in a foreign country has gotten a taste of this system on its most basic level. Over the course of an extended visit in a foreign country, a traveler is sure to notice the rises and falls in the exchange rate.
Looking closer at the process in a newspaper's financial section, an observer might notice the "bid" prices versus the "ask" prices. Basically, a bank will set the "ask" price, which is the rate it will offer to buyers. This rate will be higher than the one someone selling back to the bank would receive (the "bid" price). The difference between these two prices is known as the "spread" and is the way a bank will profit from the Foreign Exchange Markets.
The different strategies employed by investors in Forex Markets are fascinating. Some investors will look for longer terms of trends in the market, a steady devaluation or a rise in the currency's strength. At the same time, short-term speculation is highly common and can lead to substantial profits if an investor can read the trend correctly.
Forex markets are not a common item in the typical private investment portfolio. Because the control is in the hands of the banks which set the spread between the bid and ask price, these banks get a price available only to the top players in the financial world. In fact, with all of the trading which takes place on a daily basis, nearly 80% is done by the world's top ten in the banking industry. Deutsche Bank leads the way, with outfits like Barclay's and JP Morgan close behind.
Speculation in the FX Markets is rampant. Hedge funds - known for the aggressive style of investment - have been a major force in FX since the mid-1990s. One of the advantages of such an aggressive style is the ability to counteract influence made on behalf of a currency by its government. While financial ministers may be able to control devaluation using a country's central bank funds, investors can overwhelm a market with volume.
The factors which have an effect on a currency's strength around the world are numerous: government budget deficits, as well as trade deficits, are key indicators, along with inflation levels, overall GDP movement, unemployment levels and government credit rating. In addition, political factors may also have an effect on the strength of a nation's currency, as when a nation's citizens begin to sell local currency off rapidly in favor of an international alternative.
Among the many curiosities of FX trading is the fact that markets do not close between Monday and Friday. The 24 hour cycle goes from close in New York to Europe to Japan and back to New York for the opening bell.
Anyone who has ever changed money in a foreign country has gotten a taste of this system on its most basic level. Over the course of an extended visit in a foreign country, a traveler is sure to notice the rises and falls in the exchange rate.
Looking closer at the process in a newspaper's financial section, an observer might notice the "bid" prices versus the "ask" prices. Basically, a bank will set the "ask" price, which is the rate it will offer to buyers. This rate will be higher than the one someone selling back to the bank would receive (the "bid" price). The difference between these two prices is known as the "spread" and is the way a bank will profit from the Foreign Exchange Markets.
The different strategies employed by investors in Forex Markets are fascinating. Some investors will look for longer terms of trends in the market, a steady devaluation or a rise in the currency's strength. At the same time, short-term speculation is highly common and can lead to substantial profits if an investor can read the trend correctly.
Forex markets are not a common item in the typical private investment portfolio. Because the control is in the hands of the banks which set the spread between the bid and ask price, these banks get a price available only to the top players in the financial world. In fact, with all of the trading which takes place on a daily basis, nearly 80% is done by the world's top ten in the banking industry. Deutsche Bank leads the way, with outfits like Barclay's and JP Morgan close behind.
Speculation in the FX Markets is rampant. Hedge funds - known for the aggressive style of investment - have been a major force in FX since the mid-1990s. One of the advantages of such an aggressive style is the ability to counteract influence made on behalf of a currency by its government. While financial ministers may be able to control devaluation using a country's central bank funds, investors can overwhelm a market with volume.
The factors which have an effect on a currency's strength around the world are numerous: government budget deficits, as well as trade deficits, are key indicators, along with inflation levels, overall GDP movement, unemployment levels and government credit rating. In addition, political factors may also have an effect on the strength of a nation's currency, as when a nation's citizens begin to sell local currency off rapidly in favor of an international alternative.
Among the many curiosities of FX trading is the fact that markets do not close between Monday and Friday. The 24 hour cycle goes from close in New York to Europe to Japan and back to New York for the opening bell.
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