Foreign Exchange Market Main Profit Optimization Characteristics

By Investor / Published on Tuesday, 31 Jan 2017 22:33 PM

Foreign Exchange market (Forex Market) is the market where participants of the market are made transactions like buying, selling and exchanging the currencies by speculating the prices at the current or predetermined rate.  On the basis of demand of one currency to another, foreign exchange market sets the current price of the currency but it does not determine the relative value of the underlying currency, such evaluation depends on some other factors like economic policies of the country, the political situation in the country etc.  Foreign exchange markets include central banks, investment houses, financial institutions and forex brokers and investors.

The forex market has the following main profit optimization characteristics that attract to the investors.

1 .Liquidity

Forex markets are highly liquid in a sense that foreign currencies are traded over the counter among national/international brokers and dealers directly without the involvement of any clearing house or the central exchange. This type of trading sometimes also called retail foreign exchange trading.

2.Continues Operational Market.

Forex markets operate continuously 24 hours a day rather than weekly holidays. Due to this reason traders and investors find it convenient especially if they have some busy schedule during the office / other business hours.

3.Geographical Dispersion

Forex markets are now global markets. No single market is dominant in the forex market but it includes an international network of computers and brokers all over the world.

4.Volume

            Forex market now becomes the biggest finance market. Trillions of dollars are traded in the shape of derivatives that includes foreign currency swaps, spot transactions, forward contracts and in the form of other forex instruments on daily basis.

5.Leverage

It’s a loan given to the investor by the broker in proportion to his account in order to make a profit from the current market operations. So the investors are encouraged to vide this facility to grasp the market opportunity for enhancing their margins.

Although there is the presence of major currency trading exchanges in the world but still there is no consolidated or central platform for the most of the foreign currency trade. Because of over the counter market environment, there are different interrelated marketplaces available for the trading of many currencies and instruments. Trading of the currency took place consistently over the day, that trading session end in one part of the world and then starts another part of the world, rather than weekends.

Currency Exchange rate fluctuations depend on actual monetary as well as forecasted monetary flow by taking into account the changes in gross domestic product, inflation, interest rate parity, monetary policies of the country, news regarding major mergers of the companies and other economic public releases.

In forex market currencies are traded in pairs it means that the determination of one country currency value by comparing the value of other country currency. Let say, for instance, 1 Euro = 1.534 USD is the value of Euro against US dollar.

Financial institutions and large forex trading companies make transactions to manage the risk of foreign exchange portfolio in their assets line by using the different financial techniques also known as financial instruments like foreign currency swap, by making forwards / future contracts or also by using the foreign exchange options.

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