The foreign exchange market (or as most people know it, the Forex/FX market) is wherever one currency is traded for another. It is BY FAR the largest financial market on the planet, it is so big that it includes large banks like Citibank, Central banks, corporations such as Nike and Reebok, Governments like the E.U. and other institutions. The foreign exchange has just recently been traded by individuals, people who don’t have $100 million in their swiss banks accounts. The foreign exchange can be traded at any time, day or night, on holidays, weekends (given the time of day), on a plane, in a car, at home, at the office….anywhere.
The daily turnover is over $3 Trillion dollars, people like you and me at but a very small fraction of this foreign exchange market and we can only participate through brokers or banks.
The foreign exchange market is unique because of its trading volumes, there is no limit to how much you can buy or sell of any given currency. The liquidity of the foreign exchange makes it very lucrative for investors, you can deposit and withdraw money at your liking, of course there could be some losses attributed if you have any open trades at the moment you want your money. The foreign exchange isn’t a physical location like the NYSE, its everywhere. Anyone with a computer and a trading platform can access the market. The foreign exchange market has low margins of profit compared to other markets, but your profits can be very high if you trade high.
The interbank market caters to the majority of the commercial turnover on the foreign exchange market everyday. A large bank may trade billions of dollars a day, some of this trading is undertaken on behalf of the customers, but most trades are from people who work for the bank and trade the foreign exchange market for them.
Bank when the foreign exchange market was first starting, there was no electronic system to keep track of things or to monitor things with the degree of accuracy that we now come to love. No, much of the trading back then was over the phone, people would call in a trade and then a trader would make it for them. Thanks to the technology that has just been recently issued, such as foreign exchange Expert Advisors, everyone can trade the Forex market just like the big banks do. Of course, none of us have Billions of dollars to invest, but if we play our cards right we could get our piece of the pie.
Foreign exchange rates are affected by many factors, but in the end the currency prices are a result of supply and demand. The foreign exchange currency prices are not influences by just one factor, but rather many. Generally these can fall into three categories: economic factors, political conditions and market psychology.
Economic factors include economic policy, dismemberment of a government and their agencies, central bank conditions. These foreign exchange stats are usually found in economic reports and other indicators. Interested rates play a big role in the price of foreign exchange currencies, by either raising or dropping the interest rate the market can make BIG moves, and the people/companies that can figure out when that happens make a killing. Usually the bigger banks have signals and people/programs watching the news so they know exactly when to place a trade and when not to.
Internal, regional, and international political conditions and events can have a profound effect on foreign exchange currency markets. For example, a political uprising can show instability in a nation’s economy. The rise of a political “faction” that opposes the government can have a great deal to do with the foreign exchange market in that country. Events that start in one country can eventually spill into neighboring countries and effect them either positively or negatively, depending on the situation. These events have a big influence on the foreign exchange market.