International Foreign Exchange Market generalities

Posted by admin On February - 12 - 2009

Forex, short for Foreign Exchange (Foreign Currency Exchange), also known as International Foreign Exchange Market.

The foreign currency market (Forex or FX) exists whenever one currency is traded into another. This market is the largest in terms of cash value traded, also includes trade among larger banks, central banks, currency traders and speculators, multinational corporations, governments, and other financial markets and institutions. Retail traders (smaller speculators) are a small part of this market and may participate directly by companies dedicated to providing TRADING or indirectly through brokers or banks.

The currency market is not a centralized market. That means that as such there is no single price for the currencies that are traded, these vary deppending on the elements in the market.

The main trading Forex centers are the London Stock Exchange, New York Stock Exchange and the Tokyo Stock Exchange. This market operates virtually 24 hours a day: first the Asian markets open, then the European markets and finally the American markets open up. This allows investors to have a constant access to the markets with the benefit of greater liquidity and an ability to respond rapidly to economic events and or policy that affects this market.

Fluctuations in exchange rates are usually caused by actual monetary flows as well as on the expectations of changes in monetary flows that are generated by changes in economic variables such as GDP growth, inflation, interest rates, budget deficits or trade surpluses, among other factors.

In the forex market, currencies are traded in pairs. Each pair of currencies thus constitutes an individual product and is traditionally noted as XXX / YYY, where YYY is the three-letter code in ISO 4217 where the price of one unit of XXX is expressed. For example, EUR / USD is the price of the Euro (EUR) U.S. dollar (USD) and a 1 euro = 1.3200 U.S. dollars.

According to the BIS study, the most traded currency pairs are:

* EUR / USD – 28%
* USD / JPY – 17%
* GBP / USD (also called cable) – 14%

The U.S. dollar was involved in 89% of the transactions, followed by the euro (37%), yen (20%) and sterling (17%).

While business with the euro has grown considerably since its inception in January 1999, the foreign exchange market is still focused on the U.S. dollar. For example, the euro versus a non-European currency ZZZ will usually involve two pairs: EUR / USD and USD / ZZZ.

Market participants

According to the BIS study Triennial Central Bank Survey 2004:

* 53% of the transactions were exclusively between banks (interbank).
* 33% involved a dealer to a fund or other financial institution that was not a bank.
* 14% were between a dealer and non-financial company.

The interbank market caters largely to the sales volume of speculative business. A large bank may trade billions of dollars a day. Some of this is negociated on behalf of clients, but also on its own bank accounts.

Until recently, foreign exchange brokers were active in this business, making it easier for trading partners that effective enforcement of its orders in exchange for a small fee. Today, however, much of this business has moved to more efficient electronic systems such as EBS, Reuters, the Chicago Stock Exchange, Bloomberg and TradeBook.

Forex Charts for Mobile Phones

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