Forex Market

By Dane Bergen

Forex or foreign exchange market is the largest of all the financial markets that now exist in the world. A large number of multinational corporations, banks, central banks, currency speculators and other financial markets are involved in this sale of international currencies. These participants cannot directly involve in the sale of currencies. They can participate in the trade only through brokers or banks functioning in this wing of international trade.

When compared to other market, forex market possesses some unique features. It include its extreme liquidity, size, geographical dispersion, long trading hours and the variety of factors that influence the exchange rate of the currencies involved in the trade.

This international currency trading platform is utilized by the institutions like companies, fund mangers and banks to purchase and sell out international currencies. Capital flows that arise from deal in goods and services and cross border investments are the main motivating factors behind international currency trade. The sums involved in this trade will normally be very huge and most of the time a single deal in forex market will come between 3 million to 10 million US dollars.

There will be three types of participants in forex market; customers, bank and brokers. Commercial banks are the most active participants in the forex market. A large bank may trade millions of dollars a day on behalf of its customers. They are also involved in large amounts speculative trade every day by dominating the market. Until recently, a large volume of speculative trade was handled by the brokers who work in this field. With the introduction of electronic forex trading systems, much of the business has moved to these devices that work twenty four hours a day without break.

The international companies which require foreign currencies for making payments for their transactions constitute an important part of this market. They normally deal with small sums of money when compared with deals of banks and other financial speculators.

National central banks also play a crucial role in this market of currency. They often attempt to make use of foreign exchange reserves in their country to stabilize the money trade market. Mere rumor of intervention from the part of a central bank might be enough to stabilize currency.

Investment management firms who handle large accounts such as pension funds and endowments on behalf of their customers also make use of forex market to facilitate their transactions in foreign securities.

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