Forex represents a universal marketplace for interchanging one nation’s money across one another. It can also be said to be the process of interchanging one banknote into another banknote for a diversity of reasons, for instance, tourism, commerce, and trading. For example, one may exchange the Euro for the USD. Foreign swap transactions happen on the foreign interchange market called the forex market.
One of the uttermost liquid markets in the globe is the forex market, with trillions of currencies swapping hands each day. The forex market has no centralized place, and it is a digital network of individual traders, institutions, banks, and brokers. But mostly it is traded through banks and brokers.
The market establishes the exchange rate or value of the majority sums of money. The foreign swap may be as easy as swapping one country’s money for another country’s currency at a resident bank. Additionally, it may require trading money on the foreign interchanging market. Let’s take an example; a business person is predicting that a central bank will tighten or ease monetary policy or guideline and that currency from a certain nation will strengthen as compared to the other.
While transacting currencies, they are indexed in pairs, for instance, USD/AUD, USD/JPY, USD/EUR, or USD/INR. This means the U.S. dollar against the Australia dollar, the USD against the Japanese Yen, the USD against the Euro, and USD against the Indian Rupee.
Also, there exists a price connected with every pair, for example, 1.56. In a situation where this price was affiliated with the USD/AUD pair, it represents that it requires 1.56 AUD to purchase 1 USD. If the price rises to 1.61, then it means it will now cost 1.61 AUD to purchase 1 U.S. dollar. Another example, 76.52 INR will be required to exchange for 1 USD, and in circumstances where the INR decline to 75.43, then it will cost 75.43 INR to buy 1 U.S. dollar. The USD improved in value while the AUD declined in value since it cost more AUD to purchase 1 USD, and on the other side, the USD decreased in value compared to INR since it requires less INR (from 76.52INR to 75.43INR) to purchase 1 USD.
At the foreign market, monies transacted in lots, termed as standard, mini, and micro-lots. A standard lot means one hundred thousand (100,000), a mini lot represents ten thousand (10,000), and a micro lot represents one thousand (1000). This is unique compared when one goes to a local bank and needs $500 swapped for his trip. While trading in the computerized forex market, transactions happen in set blocks of money, although one is able to transact several blocks as he prefers. For instance, one may transact five micro-lots (5,000) or two mini lost (20,000) or 81 standard lots (810,000).
The forex market involves large volumes of transactions. The largest transacting centers are Singapore, London, Tokyo, and New York.
The forex market operates 24 hours in a day and five days in a week over most financial centers all over the world. This implies that one is able to sell or buy monies at any time of the day.
This is just an introduction on forex market and forex trading. Let's meet next time where I will be talking about the market makers and how they affect the forex market.
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